Asia refining margins at lowest seasonal levels since 2020 as supplies grow
Asian refiners' margins slumped to their lowest seasonal levels since 2020 this week as supplies of diesel and gasoline rose after peak summer travel demand ended, industry officials and analysts said on Friday. Persistent weak margins could prompt refiners to trim their output again, adding to a round of cuts that took place earlier in the year when margins were also low and curbing crude demand in Asia, the region that contributes most to global oil demand growth.
"Asia has been cutting runs since May, 400,000 bpd-500,000 bpd, including China," said Amrita Sen, founder and director of Research at consultancy Energy Aspects. "We've already included 300,000 bpd of run cuts for Q4 potentially another 100,000 based on where the margins are today."
Complex refining margins in Singapore, the regional bellwether, slumped to $1.62/bbl this week, LSEG data showed, with the average in the first week of September down 68% from the same period last month. Margins are at the lowest seasonal level since 2020, slipping into a trough earlier than usual, as U.S. summer gasoline consumption disappointed while China's economic slowdown dampened demand.
Asia's diesel margins are hovering near 18-month lows while the cash discounts for 10-ppm sulfur gasoil have hit a near four-year low amid a widening in contango in its market structure. Prompt prices are lower than those in future months in a contango market, signaling ample supply.
Since June, traders have been moving record volume of diesel on very-large crude carriers from Asia to the west, adding to rising inventories in Europe. In China, apparent diesel demand is down 3% in the first seven months this year, said Victor Yang, senior analyst at Chinese consultancy JLC. This comes after top refiners Sinopec and PetroChina reported sharp year-on-year drops in first-half sales, he added. Sales in September and October, which are typically peak diesel consumption months in China, may also disappoint, he said.
China's July oil refinery output sank to the lowest since October 2022, while Sinopec, Asia's largest refiner, has said it plans to keep crude processing rates stable in the second half versus the first half. For gasoline, prices in Asia slipped to their lowest in three years this week with cracks hovering at their lowest since October, LSEG data showed.
Gasoline prices came under pressure from a switch to winter grade in the United States, and as Nigeria's new Dangote refinery has started producing the motor fuel, Lin said.
An improvement in naphtha margins and robust demand for very-low-sulfur fuel oil (VLSFO) are providing some support for refiners' margins, he added.
Formosa is gradually reducing operating rates at its refinery ahead of a scheduled maintenance in mid-September, Lin said. Its refinery is processing 420,000 bpd-430,000 bpd of crude this week, compared with 440,000 bpd-450,000 bpd in August, he added.
An official at a South Korean refiner it is putting in place a flexible production plan with the aim of providing stable supply to meet increased heating oil and jet fuel demand in fourth quarter.
Comments