* European refining margins drop to lowest since July 2014
* Refiners set to reduce rates due to big diesel stocks
* 2015 European margins strongest in 20 years - WoodMackenzie
By Ron Bousso
LONDON, Oct 14 (Reuters) - European refiners will likely cuttheir operating rates in the coming weeks in the face of fallingmargins, ending a rarely seen strong run of profits, consultancyWood Mackenzie said on Wednesday.
Benchmark northwest European refining margins
Weaker refining margins and operating rates bode badly forEurope's top oil companies including Royal Dutch Shell,BP and Total, whose sharp drop in profits sinceoil prices started their rout in June 2014 has been largelycushioned by strong refining earnings.
European refining margins are expected to average $6 abarrel in 2015, the strongest levels in nominal terms since WoodMackenzie's records started in 1995, said Jonathan Leitch, theconsultancy's research director for refining and oil products.
But with refining margins declining rapidly, plants areexpected to reduce their crude oil processing rates.
Rates in European members of the Organisation for EconomicCooperation and Development will likely fall to around 81percent of capacity from the current 85 percent, Leitch said.
"Naturally, European refining runs will decrease and some ofthe refiners will be running at more traditional levels," hesaid.
Even increased seasonal demand for heating oil, a highersulphur content diesel, is unlikely to change the picturesignificantly, he added.
"Refiners have been running really hard during the summer tomeet the very strong gasoline demand and naturally you havediesel coming out too. It seems to us diesel has been abyproduct of gasoline. That gasoil has been building up asexcess stock," Leitch said.
Diesel and gasoil inventory levels in theAmsterdam-Rotterdam-Antwerp hub have climbed to record highsthat are testing the region's storage capacity, leading tradersin recent days to seek storage on gianttankers.
Low water levels along the Rhine river
According to Wood Mackenzie, total diesel and gasoil stocksin northwest Europe at the end of 2015 will reach 260 millionbarrels, the equivalent of 74 days of supply. That compares withstocks reaching 240 million barrels at the end of 2014, or 66days of supplies.
At the same time, demand for gasoline, which has been themain driver behind this year's spectacular growth in oil demandaround the world, has been gradually ebbing in recent weeksafter the end of the peak driving season in the United States.
The picture is not all that gloomy, however.
While European refining margins next are set to drop sharplyfrom 2015, they are still expected to be significantly strongerthan previous years due to ongoing global demand for fuels,primarily gasoline, Leitch said.
"Growth is slowing down, but it is not a negative story.Demand is still there and strong."
(Editing by William Hardy)
