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Gunvor Expects Refinery Closures in Southern Europe

Gunvor Group Ltd. expects as many as 10 European refineries to shut, mostly in Southern Europe, because of falling demand for oil products.

A reduction in European capacity of 1 million to 2 million barrels a day is possible, said David Fyfe, the Swiss commodity trader’s global head of market research and analysis, in an interview at the Global Energy conference in Geneva yesterday.

“It is quite easy to say that five to 10 refineries, probably the bulk of them in Southern Europe, may close over the next five to seven years,” said Fyfe, whose company is the fifth-largest independent commodity trader.

European refineries are struggling with low capacity utilization because of falling demand and a rise in oil-product imports from U.S. refineries that have been revived because of the shale-energy boom.

“I don’t think we are likely to see a scenario where oil demand recovers structurally in Europe,” Fyfe said. “This is a mature market.”

Gunvor’s outlook is less bleak than some forecasts, Fyfe said. Closures won’t occur quickly and new entrants, including commodity-trading companies, will step in to purchase some troubled assets, he said.

“You have the national oil companies, you have the trading companies who see distressed assets and believe they can run them more efficiently or they can gain a strategic foothold in a given market,” he said. “That means that capacity keeps on running.”

Swiss commodity traders such as Vitol SA, Mercuria Energy Trading SA and Gunvor are buying refineries in the belief they can wring efficiencies out of the operations by pairing them with their trading businesses. Gunvor, which is registered in Cyprus with major trading operations in Geneva, purchased two refineries last year, one in Ingolstadt, Germany, and another in Antwerp, Belgium.

Swiss-based independent refiner Petroplus filed for insolvency last year and two of its five refineries remain closed.

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