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Asian Refining Margins Tumble As New Shipping Fuel Rules Loom

Keihin Refinery

Refining margins in Asia have slumped by more than 50 percent since the middle of July as fuel market participants have accelerated the sell-off of high-sulfur fuel oil ahead of the new shipping fuel standards as of January 2020, market analysts told Reuters on Friday.

Asian refining margins have been on ups and downs this year, with profitability slipping to a 16-year low in May, which prompted some refiners across Asia to shut down for maintenance, while others reduced their fuels production.

Some Chinese refiners were also curtailing refinery runs in the third quarter as massive refinery start-ups and slowing domestic fuel demand have created a fuel glut in the country, hurting refining margins. 

Weighed down by depressed refining margins earlier in the year, refiners across Asia reduced in June and July production and some closed down for maintenance, thus boosting refining margins in the middle of July to their highest since September 2017.  

In the three weeks to July 11, the benchmark Singapore refining margin more than tripled to US$9.37 a barrel, from just US$2.74 per barrel on June 21.  

Yet, since the middle of July, the fuel margins started to slide again, as market participants de-stock and sell high-sulfur fuel oil (HSFO), which can no longer be used in ships after January 1 unless said ships have installed the so-called scrubbers—systems that remove sulfur from the exhaust gas emitted by bunkers.

As of August 22, the benchmark Singapore refining margin fell to US$4.31 a barrel, down from US$9.37 on July 11 and down from US$7.39 in early August.

Looking forward, the fuel glut could continue to depress margins of gasoline and diesel as refineries come out of maintenance and new refineries, including in China, start up or ramp up production.

China, for example, may boost its gasoline exports in the second half of the year due to the fuel glut in its domestic market and to higher export quotas, analysts at JLC said this month.    

By Tsvetana Paraskova for Oilprice.com

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