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Finnish refiner and bunker supplier Neste Oil has announced a smaller-than-expected increase in earnings following the sharp decline in oil prices and said that 'good' bunker demand had been seen in 2008.

Comparable operating profit for the fourth quarter of 2008 was EUR 103 million versus EUR 84 million during the same quarter last year, whilst comparable operating profit for the year was EUR 602 million, down from EUR 626 million the previous year.

Commenting on the marine fuel sector, Neste Oil said it had experienced 'good' marine bunker demand in 2008, which together with new conversion capacity had led to improved demand for heavier crude.

The company said the price differential between heavy and light crude was volatile last year, widening during the first few months of 2008 but narrowing as crude oil prices fell. The average differential between Urals and Brent Dated in 2008 was USD -2.95 /bbl (-3.10). During the fourth quarter, the differential averaged USD -1.82 /bbl (-2.88).

Refining margins were slightly lower compared to 2007, and were mainly driven by middle distillates, as gasoline demand suffered from high prices. Margins peaked in September, when hurricanes forced refineries to shut down in the US Gulf. The international reference refining margin for complex refineries in Northwest Europe, IEA Brent Cracking, averaged USD 4.74 /bbl (5.09) in 2008 and USD 4.26 /bbl (4.27) in the fourth quarter.

Boosted by increasing demand, middle distillate margins, which were already strong, improved further in 2008, especially during the second quarter, Neste Oil said. High prices and the worsening economic outlook did not affect demand, which even improved when supply was disrupted by refinery outages. At the end of the year, demand for middle distillates eventually started to show signs of suffering from the economic recession and margins decreased.

Fuel oil margins remained negative throughout 2008, but improved in the second half as crude oil prices declined. High-sulfur fuel oil was temporarily strong due to low Russian exports and very good bunker demand.

According to in-house production figures, Neste Oil produced 981,000 tonnes of heavy fuel oil in 2008, compared with 1,097,000 tonnes in 2007. During the fourth quarter last year, output was 220,000 tonnes, down from 322,000 tonnes during the same period in 2007.

Commenting on the company's financial results, President & CEO Matti Lievonen said: “The oil market witnessed an unprecedented fall in prices in the second half of 2008. This resulted in exceptional inventory losses, which weakened our IFRS numbers significantly compared to 2007. Our comparable operating profit, at EUR 602 million, was around the level we achieved in 2007, and our cash flow from operations healthy at EUR 512 million.”

“Our total refining margin increased significantly in 2008, and is clear evidence that, as a refiner focused on diesel and other middle distillates, we were better-placed than most refiners. It appears likely that the middle distillate market will continue to perform better than the gasoline market in 2009, but we expect global demand for petroleum products generally to fall. Going forward, we will need to focus on reducing costs and improving efficiency to safeguard our profits and cash flow.”