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Asia refining margins drop to lowest since May on ample supplies, crude gains

Profits for Asia’s oil refiners dropped to their lowest since May last year as rising supplies dragged down regional fuel prices at the same time that global crude oil prices have climbed to two-year highs, data on Thomson Reuters Eikon showed.

Margins at a typical complex refinery in Singapore fell on Friday to $5.93 a barrel, the lowest since May 23, the data showed. Seasonally, the margins are the lowest since 2010 for early January. DUB-SIN-REF

The drop in profits could reduce Asian refiners’ demand for incremental crude in the near term and weigh on global prices.

“We’re still positive on global refining margins this year, especially in H1 18, with the lack of any significant capacity additions in the early part of the year and the current momentum in global demand growth,” Nevyn Nah, oil products analyst at Energy Aspects in Singapore, said by email.

“But among the regions, we’re least constructive on Asia as we expect Asian refinery runs growth to accelerate in 2018 as 0.8 million bpd (barrels per day) of capacity, added mostly in late 2017, ramps up.”

Refining margins stayed above $7 a barrel for most of the final quarter in 2017, encouraging refineries from China to Thailand to crank up output to full rates. The volume of crude processed by the region’s top four refiners by capacity – China, Japan, India and South Korea – hit an all-time high of about 23 million bpd in October, data on Eikon showed.

Gasoline and naphtha margins led the drop in overall margins. Recent higher prices for naphtha, used to make petrochemcials and gasoline, attracted the highest volume of naphtha shipments from the west to Asia in two years, adding to supplies.

China also raised refined products export quotas to its four state oil majors by 30 percent in the first batch of allowances for 2018.

The gasoline quota was much larger than before and was expected to weigh on refiners’ margins in Asia, traders said.

The premium of gasoline over Brent crude oil fell below $7 a barrel on Jan. 3, for the first time since September 2016. GL92-SIN-CRK

Demand for fuel oil in Asia recently took a hit after Pakistan said it had indefinitely suspended imports of the fuel, used in power generation, as it switched to liquefied natural gas to meet its power requirements. That has removed about 400,000 to 650,000 tonnes of monthly fuel oil demand.
Source: Reuters (Reporting by Florence Tan; Additional reporting by Roslan Khasawaneh and Seng Li Peng; Editing by Christian Schmollinger)

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