Asia’s gasoline refining margins depressed on high crude prices, ample supplies
High crude oil prices and ample gasoline supplies are depressing Asia’s refining margins for petrol, now languishing around two-year lows with few signs of improvements.
After a brief surge in late May, led by demand from Asia’s top importer Indonesia, gasoline margins deteriorated again from June and hit a 22-month low of $3.60 a barrel on June 20.
The margin, known as a crack spread, has barely improved since, and last closed at $3.64 per barrel. GL92-SIN-CRK
So far this year, the average gasoline crack has been $7.4 per barrel – the lowest since 2012 for that period of a year.
Margins have been eroded by a surge in Brent crude oil prices into the high $70-per-barrel area.
Prices for crude, the most important feedstock for refiners, have been driven up by unplanned disruptions from Canada to Libya and Venezuela, as well as looming U.S. sanctions against major oil exporter Iran, which will also target its petroleum industry.
“Increasing crude oil prices in May and June…led to slower demand for gasoline, despite the peak driving season in the U.S.,” said Singapore-based shipping brokerage Eastport in a note to clients on Wednesday.
Joe Willis, analyst at energy consultancy Wood Mackenzie, said the slowdown in U.S. gasoline consumption “means the U.S. has less import demand and higher export potential,” and that “Europe is consequently looking east to place these displaced volumes.”
The United States consumes around 10 percent of global gasoline, with Europe sending most of its excess petrol over the Atlantic.
Demand growth for gasoline is also slowing in Asia. Michael Dei-Michei, head of research at JBC Energy, said Asia’s gasoline demand growth was 220,000 barrels per day (bpd) last year, down from 270,000 bpd in 2016 and 500,000 bpd in 2015.
This slowdown comes just as China’s gasoline exports have surged as refiners there produce more fuel than the domestic market can absorb.
“China may step up exports of refined products…driving global supplies up,” Eastport said.
Despite this, margins may not stay depressed for much longer. DUB-SIN-REF
For one, traders say that gasoline consumption now remains relatively strong, even after the peak demand summer driving season as its use spreads globally in emerging markets. Petrol remains an essential fuel for cars, although demand growth has been slowing due to more efficient and green vehicles taking to the roads.
For another, demand growth may still outstrip the increase in available supplies.
“Despite China’s growth in gasoline exports, Asia’s gasoline balance is tightening because demand growth continues to outpace supply growth,” said Wood Mackenzie’s Willis.
He estimated supply would lag demand by 60,000 bpd this year.
Source: Reuters (Reporting by Seng Li Peng Editing by Henning Gloystein and Kenneth Maxwell)