Asian refiners are contemplating reductions in their refined fuel production in the coming months, with some already trimming output in May. This move comes as excess diesel supplies have squeezed profit margins, according to traders and analysts.
Refiners are also facing higher crude costs after Saudi Arabia raised prices for June-loading cargoes to their highest in five months. Lower refinery output could cap crude demand in Asia, home to top importers like China, India, and Japan, potentially weighing on global prices.
Refining margins in Singapore, the Asia benchmark, slipped under $4 a barrel in April from nearly $6 in March, despite several plants shutting down for maintenance during the low-demand second quarter season.
“Refining margins are expected to remain subdued in May and June, which will likely trigger run cuts on the margin for export-oriented refineries,” said Ivan Mathews of consultancy FGE.
Taiwan’s Formosa Petrochemical Corp, one of Asia’s largest refined products exporters, has already cut its May run rate by about 3 percentage points to 82%, or 441,000 barrels per day (bpd), from an original plan of 85%.
South Korea’s second-largest refiner, GS Caltex, is also trimming output by 20,000-30,000 barrels per day in May, according to trade sources. However, the top refiner, SK Energy, has no plans to cut run rates in May-July.
In China, Sinopec and PetroChina are considering run cuts in June, eyeing export margins as they await more fuel export quotas to be issued, according to two people familiar with the matter.
The reduced refinery output could cap crude demand in Asia, potentially weighing on global prices, as the region is home to the world’s top oil importers.