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The refining margin is the gross profit minus costs (ENERGY, CRUDE PRICE, LABOUR etc..). Margins in Europe have been tight since the global financial crisis in 2008.
In Europe, the margins are lower given the high labour costs, higher price of crude (than compared to US, Asia and Middle East) and the choice of crude available for the European Refineries, given that most of the refineries will not be able to process the heavy crude.
North Sea crude is expensive (sweet crude) and Arab heavy is hard to process given that there are few hydrocracking refineries being brought online in Europe fast enough, to process heavy crude.
Crude API and Sulphur Content Projections
Crude API values will likely fall, and the crude sulphur content will increase - this will prove difficult for the European Refineries unless they invest. The current financial markets will make it difficult for loans to be made to pure play refiners, and IOCs are getting out of the refining sector in Europe. The likely scenario will be that National Champions, both European and from the emerging markets may fill the gap, with majority of the demand of middle distillates being met from trade.
Wood Mackenzie global refining margin analysis.
Refining margins hit a low in February 2012, at $1.35 per barrel, but have since increased. The increase in refining margins will not be like the pre 2005 levels - at a time when Petroplus came into the market, trying to emulate Valero.
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