Asia's Gasoline Glut Drags on Refining Margins

Posted by Joseph Keefe
Friday, April 20, 2018
Asia's gasoline crack on Thursday hit lowest since 2016; recent high refinery throughput countered maintenance season.
Gasoline profits for Asia's oil refiners hit their lowest since 2016, while refining margins have touched a three-month low, pulled down by high crude oil prices and an oversupply of fuel.
The slump in profit margins comes as prices for crude oil , which is the most important feedstock for refiners in Asia, hit their highest since late 2014 of almost $75 per barrel.
The recent high refinery activity in Europe and Asia caused gasoline inventories to swell to record highs in late March, forcing traders to charter tankers in order to store excess fuel offshore as space on land runs low.
Refineries in China processed a record volume of 51.51 million tonnes of crude in March.
Average refinery profits in Singapore , which act as an Asian benchmark, are down by half from their 2017 highs, to $5.69 a barrel, weighed down by rising crude oil feedstock prices.
Asia's gasoline profit margins, known as crack, based on Brent crude oil dived to $5.42 a barrel, the lowest since Aug. 24, 2016. "Margins are getting smashed," said Nevyn Nah, oil products analyst at Energy Aspects in Singapore.
"This could potentially hurt crude-buying appetite this summer," he added.
When measured against Dubai crude , the average gasoline crack from April 2-19 was 21.4 percent lower versus the same period last year.
One of the reasons for the fuel glut is soaring Chinese exports.
"We see reasonably robust demand in most of the emerging countries in Asia, but Chinese exports continue to be a drag," said Sri Paravaikkarasu of consulting firm FGE.
"Although Chinese exports have moderated somewhat now and will remain relatively low in May on account of refinery turnarounds, a surge (in exports) is inevitable in the subsequent months."
The weak gasoline fundamentals also affected naphtha as it is used as a blending component for petrol, but traders were hoping that summer demand would help ease the oversupply.
This week, only two 60,000-tonne tankers were storing gasoline off the coast of northwest Europe, down from as much as 400,000 tonnes of floating storage earlier this month, according to traders.
"All in all, it should be a weak start to the summer but as Atlantic Basin pulls out from the glut, we should see a recovery," said Paravaikkarasu.
Middle distillates, comprising diesel and jet fuel, could also serve as buffers and prevent Asia's refining margins from being hit any further.
Demand for jet fuel, seen especially strong India, kept the average crack level for April 2-19 this year around $15.70 a barrel, up 36 percent versus the same period last year.

Reporting by Seng Li Peng 

Categories: Contracts Finance Energy Fuels & Lubes Logistics

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