Asia refining margins remain weak on low demand


Asian oil product demand showed little improvement last week, with most product margins declining for all major fuels and dragging down the benchmark Singapore refining margin.

The benchmark Singapore cracking margin -- a measure of the profitability of advanced oil refiners--narrowed to an average of $3.29/bbl against Dubai crude in the week ended Aug. 30 compared with $3.97/bbl a week earlier, according to Facts Global Energy.

"Margins are being pressured by simultaneous weakness across the barrel, with gasoline, gasoil and fuel oil cracks all deteriorating recently," FGE said, adding that the Singapore refining margin fell to its lowest level since late 2011.

Asian light distillate cracks are likely to remain under pressure, with gasoline cracks weakening as the summer driving season in the US and Europe draws to a close, lowering seasonal exports by Asian refineries.

"Naphtha cracks are seeing some support from the shortfall in Libyan crude and condensate exports, which could begin to tighten supplies of European naphtha available to Asia," FGE said.

Gasoline cracks are at a 10-month low, rising just 28 cents last week to average $6.52/bbl, while naphtha cracks were steady, declining just 5 cents to average $6.48/bbl.

The outlook for middle distillates -- mainly diesel and jet fuel -- is stronger than previously expected due to heating demand with the onset of winter in North Asia and other parts of the world and tighter supply.

"Global gasoil demand is projected to rise by nearly 700,000 barrels a day in the fourth quarter from the third quarter, while gasoline demand is forecast to fall by 100,000-200,000 barrels a day over the same period," Barclays said in a note.

It said global refinery expansions and upgrades expected in the second half of this year were previously a threat to distillate cracks but are now seeing substantial delays and cancellations.

However, BNP Paribas said any gains in the diesel market will be capped by higher supply as China adds refining capacity and Indian exports rise.

Last week, the benchmark 500ppm-sulfur gasoil crack fell $1.41 to average $14.89/bbl, while the jet fuel crack narrowed by 86 cents to $16.26/bbl.

Meanwhile, margins for fuel oil in Asia continue to deteriorate due to weak demand from shipping, arbitrage inflows from the West and rising output from refineries.

The crack for 380-cst high-sulfur fuel oil fell $2.63/bbl to average minus $14.35 last week, its lowest level in over five years, FGE said.

"As such, the outlook for fuel oil continues to look very weak."

Dow Jones Newswires

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