French refineries barely running as strikes enter week 4

FRANCE’S oil-processing industry is running at a fraction of normal capacity, as worker strikes enter their fourth week.

Four of the nation’s six refineries are barely operating, after Exxon Mobil started taking the larger of its two French facilities out of service at the weekend, because it could not get crude into the site. The country’s labour action is causing ripple effects across the global oil market, weakening the prices of grades from the North Sea and West Africa.

Walkouts have reduced French diesel supply by 200,000 barrels a day, Energy Aspects said in a report last week. About 80 per cent of the nation’s crude-processing capacity could be offline, data compiled by Bloomberg showed. 

“Strike action is coinciding with refining maintenance in north-west Europe and unworkable arbitrages at key routes,” Energy Aspects said. Walkouts have accelerated the pace at which diesel is being taken out of storage, it added.

France relies on diesel imports to meet supply at the pumps. Tankers bound for French ports have diverted in recent days, with key import terminals hobbled.

The diesel market showed signs of strengthening in early March, evident in spreads in ICE Gasoil futures, the region’s benchmark contract. The premium on the contract closest to expiry rose to as much as US$36.50 on Mar 22 – more than double the level at the start of the month – before weakening at the end of last week. 

The latest round of strike action is increasingly reminiscent of the walkouts last autumn, when refineries halted and pumps ran dry. The impact on diesel has possibly been less severe this time around, because the region has built up inventories in the past year, and is now entering summer, when demand typically falls.  

Mounting economic headwinds might also weigh on Europe’s longer-term demand, said Energy Aspects. Fitch Solutions also expects strikes to have a muted impact on the fuels market this time around. 

“Recession risks are still elevated,” said Emma Richards, associate director for oil and gas at Fitch Solutions. “Even in advance of the current industrial action, we expected oil demand in both France and the wider EU region to decline year on year in 2023, which takes some of the pressure off.”

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Total said on Monday (Mar 27) that about 32 per cent of operators at its refineries joined strike action, a cut in participation from the middle of the month. BLOOMBERG