Slow economic growth in Asia has led local downstream firms to turn down refining production as energy products flood the regional market, according to a recent report by Reuters.
Typical seasonal patterns require energy producers to increase output before and during the summer months to meet demand caused by the increased use of cooling devices.
However, many Asian refiners have decided to cut output capacity in July and August after several countries in the region binge-purchased oil and gas after the oil price drop earlier this year.
"Falling refining margins are prompting refiners to consider economical run cuts," said Sri Paravaikkarasu, a senior analyst at Facts Global Energy.
"This will help to clear some surplus in the second half of 2016.”
Increased crude oil prices have also pushed refiners to decrease margins on processing services.
PetroChina and Chevron Corp.’s joint venture, Singapore Refining Company, will operate at 80 percent capacity over the next three months, according to anonymous sources cited by Reuters. The move represents a 10 percent decrease from production rates in May, the source added.
The South Korean refiner SK Energy will cut crude output through August, and the country’s second largest refiner, GS Caltex, experienced run rates that were ten points lower in Q2 than Q1. Since then, GS Caltex’s rates have not shown signs of improvement. Related: U.S. Oil Rig Count Higher, Sees Biggest 2-Week Rise In A Year
Both firms declined Reuters’ requests to comment on the downturn.
Analysts predict that a full six months of production reductions could lead Asian energy demand to rebound as 2016 closes up. Jet fuel, used for heating purposes, typically peaks in the wintertime.
"Fuel inventories and crude prices are starting to come off in third quarter and we're going into maintenance season again," said an inside source from a North Asian refinery. "Q4 will be better than Q3."
By Zainab Calcuttawala for Oilprice.com
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