Asia’s Refining Margins Plunge to 2020 Low as Peak Summer Demand Ends

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

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

The refining margins in the regional hub Singapore plunged by 68% for the first week of September compared to the first week of August, per data from LSEG cited by Reuters.

As a result of slumping margins and rising fuel supply amid weakening demand, analysts expect further cuts in refining utilization going forward, which doesn’t bode well for oil demand in the world’s most important growth market, Asia.

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

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

In China, underwhelming demand this year has lowered oil refining output as independent Chinese refiners are particularly sensitive to low margins and prefer to reduce refinery throughput when margins and demand are weak.

Sinopec, the largest refiner in Asia, confirmed market concerns about weak fuel demand in China when it reported first-half earnings last month.

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

While Sinopec reported a 1.7% rise in first-half net profit, thanks to increased domestic oil and natural gas production, the refining metrics of the largest refiner in Asia by capacity all deteriorated compared to the first half of 2023, reflecting weak Chinese demand—especially for diesel—that has been spooking the markets this year.

By Charles Kennedy for Oilprice.com

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