[SINGAPORE] Asian refining margins have tumbled to their lowest in nearly six weeks after touching a seven-month high in September, hit by a spike in crude prices following Opec's decision to curb output.
Singapore refining margins to Dubai crude had fallen over 34 per cent from their September-high to US$4.98 per barrel on Oct. 3, their weakest since late August.
"Higher crude prices tend to drive down margins - gasoline margins ... should be under pressure when gasoline season is over like it is now," said Oystein Berentsen, managing director for crude at oil trading firm Strong Petroleum in Singapore.
The decision by the Organization of the Petroleum Exporting Countries to reduce output to a range of 32.5-33.0 million barrels per day (bpd) has lifted cash Dubai crude prices by 13.6 per cent in the last five trading days, indicating that refiner feedstock costs should rise by similar proportions.
Overall refining margins have also been dragged lower by weaker naphtha and fuel oil refining margins amid easing post-summer gasoline demand.
Refining margin discounts for fuel oil have widened as more supplies are expected to flow to Asia after peak-summer demand for cooling in the Middle East fades.
Naphtha refining margins have also been hit by weaker demand following shutdowns of naphtha crackers in Singapore and Japan, traders said.
Naphtha refining margins to Brent crude futures have fallen 22.6 per cent in the last five trading days to US$36.83 per tonne.
Shell declared force majeure on base chemicals from its ethylene cracker at its Bukom manufacturing site in Singapore after an outage last week. The unit's feedstock is mainly naphtha but it can also process liquefied petroleum gas (LPG) and residual fuel.
"Shell's cracker (being) down is taking away demand so prompt naphtha is very bearish," said a Singapore-based trader.
Middle distillate refining margins, which have held steady around US$12 per barrel to Dubai crude, were the only bright spot for refiners, a second Singapore-based trader said, adding that ongoing refinery maintenance in Asia was supporting prices.
"Refiners are hoping for a cold winter to boost heating oil demand," the second trader said. Both traders declined to be identified as they were not authorised to speak with media.
Upside for Asian refinery margins in the coming quarter is limited as the supply glut in the naphtha market is expected to grow and gasoline demand is likely to remain lacklustre.
"I think naphtha cracks are going to be hard to recover. Sooner or later Qatar's Ras Laffan 2 condensate splitter will start and it's bearish with more naphtha supply coming from them," the first trader said.
Qatargas will start operations at its new 146,000 bpd Ras Laffan 2 condensate splitter by the end of this month after the firm delayed its September-scheduled start-up.