Asia’s refining margins slip to lows in 2020 as peak summer demand ends

Refining margins in Asia fell this week to their lowest level for this time of year since 2020, which could lead to more rate cuts at Asian refiners, including in China.

As fuel supplies rise after demand peaked for the summer, margins are now at their lowest level in four years, analysts and industry sources told Reuters on Friday.

Refining margins in regional hub Singapore fell 68 percent in the first week of September compared with the first week of August, according to LSEG data cited by Reuters.

As margins fall and fuel supply rises amid falling demand, analysts expect further reductions in refining utilization going forward, which does not bode well for oil demand in the world’s top growth market, Asia .

“Asia has been cutting 400,000-500,000 barrels a day since May, including China,” Amrita Sen, founder and director of research at consultancy Energy Aspects, told Reuters.

The consultancy has already factored into its balances 300,000 bpd of cuts in refinery operations for the fourth quarter, Sen said, adding that there could be another 100,000 bpd of cuts in run rates if current low margins persist.

In China, unfavorable demand this year has reduced oil refining output, as independent Chinese refiners are particularly sensitive to low margins and prefer to cut refinery output when margins and demand are weak.

Sinopec, Asia’s biggest refiner, confirmed market concerns about weak fuel demand in China when it reported earnings for the first half of last month.

Sinopec, or China Petroleum and Chemical Corporation, as it is officially known, flagged “severe challenges from weak market demand and narrowing margins for certain products” in the first half of the year.

While Sinopec reported a 1.7 percent rise in net profit in the first half of the year due to higher domestic oil and natural gas production, refining figures for Asia’s largest refiner deteriorated on a capacity basis compared to the first half of 2023, reflecting weak demand from China. especially for diesel – which has spooked the markets this year.

By Charles Kennedy for Oilprice.com

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