June 27, 2024 [Reuters]- The profit margin for Asian refiners turning crude oil into fuels has stabilised at relatively weak levels, but where the money is being made has shifted from gasoline to diesel.

The crack, or margin, for a typical refinery in Singapore processing regional benchmark Dubai crude ended at $3.59 a barrel on Wednesday, up from $3.40 at the previous close.

Apart from a brief period of weakness at the end of May, which saw the margin drop to a low so far this year of $0.90 a barrel, the crack has been in a fairly narrow range between $2 to $4.50 since early April.

This is about half of where the profit margin started the year, with a peak so far in 2024 of $9.91 a barrel on Feb. 13.

Asian refiners, which account for about 40% of global capacity, have been caught between relatively strong crude oil prices as the OPEC+ group of exporters limits output, and easing prices for the main refined products of diesel and gasoline amid demand concerns in major consuming countries including China.

The struggles of the world’s second-biggest economy to build growth momentum has been largely reflected in the crack for gasoil, the building block for middle distillates diesel and jet fuel.

The margin for producing gasoil in Singapore dropped to a one-year low of $13.81 a barrel on May 23, halving from its peak so far in 2024 of $26.93 on Feb. 14.

But since the May nadir, the crack has recovered somewhat to end at $16.82 a barrel on Wednesday.

As yet it’s too early to say whether this is because of rising demand across Asia, or because the recent overhang of supply is dissipating, or even a combination of both.

Certainly, the volume of gasoil being supplied into Asia appears to have eased in June, with LSEG Oil Research estimating shipments from top exporter India will remain under 2 million metric tons for a third straight month.

Exports from China, the second-biggest shipper in Asia, are also expected to decline in June to around 850,000 to 900,000 tons from May’s 1.03 million amid refinery maintenance.

Inventories of middle distillates in Singapore, Asia’s main fuel trading hub and a refining centre, dropped to a near four-month low of 8.86 million barrels in the week to June 19, official data showed.

GASOLINE STRUGGLES

In contrast to the improving picture for gasoil, Asia’s gasoline market is showing signs of stress, with the profit margin in Singapore for producing a barrel of 92-RON fuel from Brent crude dropping to $4.85 a barrel on Wednesday.

The crack hit an eight-month low of $3.50 a barrel on June 13 and the modest recovery since then hasn’t been enough to alter the overall declining trend seen since late January, when the margin hit a high so far this year of $16.73.

Gasoline exports in Asia are expected by LSEG to be around 5.5 million to 6.0 million tons in June, roughly in line with May’s 5.8 million.

China’s shipments in June will exceed the 860,000 tons from May, while India’s will remain steady around 1.25 million and those from South Korea are expected to drop from May’s 1.24 million amid lower refinery utilisation, LSEG forecasts.

The main issue with the gasoline market is demand has disappointed, both in Asia and in the export markets in Europe and the United States.

The northern summer driving season may offer some relief, but it’s likely that refineries will have to consider lowering throughput in order to lower supply for there to be any sustained recovery in margins.

Much will also depend on what Saudi Arabia, the world’s biggest oil exporter, does with its official selling prices (OSPs) for August, which will be announced early next month.

Saudi Aramco, the state-controlled oil major, cut its OSPs for Asian customers for July-loading cargoes, the first time in five months it had lowered prices.

However, the 50-cent per barrel cut for its main Arab Light blend to a premium of $2.40 a barrel over the Oman/Dubai average wasn’t seen as enough to allow Asia’s refiners to enjoy stronger margins.

Given Saudi Arabia and its partners in OPEC+ appear to want to keep oil prices at least around the current levels of $85 a barrel for Brent, this could limit the amount Aramco may be prepared to lower the OSPs for August.

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