Petroplus, Europe's largest independent refiner, is filing for insolvency, becoming the most prominent victim of weak refining margins and a freeze in credit markets.
The fate of the company, which is based in Switzerland, highlights the malaise of the continent's refining sector. Profits have been squeezed by a spike in Brent prices and increasing competition from outside a trend that should let Gulf players increase their market share in the euro zone.
Petroplus said on Tuesday negotiations with banks to unblock credit had failed, and on Friday insolvency proceedings were filed for the refiner and its units in Switzerland and Belgium.
"We were ultimately not able to come to an agreement with our lenders to resolve these issues given the very tight and difficult European credit and refining markets," said Jean-Paul Vettier, the Petroplus chief executive.
Petroplus has a total of US$1.75 billion (Dh6.4bn) of debt maturing from 2014, obligations it will not be able to meet without fresh capital. European banks are unwilling to lend in the wake of the sovereign debt crisis, and with regulation mandating higher capital reserves coming into force. The company is winding down operations at its five European refineries.
While the rise in oil prices resulting from the interruption of Libyan crude supplies during that country's civil war proved too much for some European refiners last year, pressure had been mounting on the sector before then.
"The main factor that caused a lot of refineries to close was the spike in Brent prices and the fall in Libyan production. But the more long-term trend is to do with competition both within Europe and with plants outside Europe," said Idriss Hadj-Nacer, an oil and gas analyst for Business Monitor International.
Huge petrochemical and refining complexes in the Saudi Arabian industrial cities of Yanbu and Jubail are testament to the Gulf's growing refining capacity.
The UAE is also part of the region's refining growth trend, and the Abu Dhabi-owned investment fund International Petroleum Investment Company is building a refinery in Fujairah, and is in talks about building another in Oman.
"Europe's losses could be a great opportunity for the Middle East. As refining recedes in Europe, there is room for more imports. And Europeans are maybe willing to let that sector die, as its margins are too small and it's not very profitable," said Mr Hadj-Nacer.
The loss of Petroplus' 2 million barrels per day (bpd) refining capacity will probably eradicate overcapacity in Europe, but further closures in the euro zone likely. "Capacity additions in the non-OECD [Organisation for Economic Cooperation and Development] are set to continue at a record pace and thus more OECD refinery closures will be required to balance the market," said Barclays Capital analysts in a report.