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Asia gasoline refining profits leap as China cuts exports amid virus outbreak

Asian refiners’ profits from producing gasoline have rebounded this week from multi-month lows, outperforming other fuels, as prices rose on dwindling supplies from China, according to industry sources and Refinitiv data.

Gasoline exports from China, the region’s top exporter, fell in January while its refiners cut crude oil throughputs amid the coronavirus epidemic that has slammed domestic fuel demand.

Supplies of gasoline have also been squeezed by other Asian refiners tweaking output to produce more of a lucrative low-sulphur fuel oil (LSFO) at the expense of gasoline. The LSFO is being snapped up by shippers now required to use cleaner fuels under new maritime transport rules that kicked in at the start of the year.

January gasoline shipments from China stood at about 1.3 million tonnes, down from December’s 1.7 million tonnes, Refinitiv data showed.

“We expect gasoline outflows from China to decline in first-quarter,” said Chloe Xiang, research associate at Wood Mackenzie, a trend that would exacerbate supply reductions.

The combination of circumstances has helped lift gasoline profits for Asian refiners to an average of $4.90 a barrel so far this year, versus a discount of 76 cents for the same period of 2019, according to Reuters data. Meanwhile the average 2020 margin for diesel, at $12.81 per barrel, is seasonally at its lowest since 2017.

As of Wednesday, Asia’s gasoline refining profit margin stood at $6.58 a barrel, down from a near two-month high of $7.30 a barrel on Feb. 4, which represented a 148% surge from Jan. 28.

China’s run cuts came at a time when other North Asian gasoline export-oriented refiners had already scaled down production of the fuel for cars.

Taiwan’s Formosa Petrochemical Corp, and South Korea’s S-Oil Corp and SK Energy Co. Ltd. are among refiners who pivoted to selling very low-sulphur fuel oil (VLSFO) for shippers instead of using it to make petrol.

S-Oil lowered runs at one of its residue fluid catalytic crackers (FCCs) – gasoline-making units – and planned to sell 35,000 barrels per day (bpd) of VLSFO, the company’s head of investment relations, Ko Gwang-cheol, said in a recent call with analysts.

At $16.42 a barrel, VLSFO profit margins, or cracks, are more than twice that of gasoline margins.

Analyst Sandy Kwa of FGE told Reuters that the average cut in a FCC unit would be around 5-10%, as these units have a minimum base load requirement.

“Such a swing can potentially reduce gasoline supply by 100,000 to 130,000 bpd in Asia,” she said.
Source: Reuters (Reporting by Seng Li Peng in Singapore and Jane Chung in Seoul; Editing by Kenneth Maxwell)

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