EV Sales Aren’t Making Up for Refinery Closures

For years the Western nations, especially Europe, have been reducing refining capacity in the wrong-headed expectation that electric vehicles would quickly proliferate. Despite subsidies, they have not. Now the subsidies are ending, and the electric vehicles of choice are extended-range models with onboard internal combustion generators. As a result, crack spreads have risen sharply, and US refining stocks have performed strongly this year against the backdrop of poor performance by the energy sector overall. Crude is well supplied, with OPEC raising production quotas and Russian supplies being shipped overseas while its own refineries are under attack by Ukraine. Global demand continues to increase, and it takes time to create new refinery capacity, even in the US where Trump’s deregulatory efforts at least point in a constructive direction. With global demand growing and global inventories depleted, we reiterate our target price range for Brent of $60 to $80.