The refining crunch is driving record diesel prices in Asia. Blame China: Russell

Content of the article

LAUNCESTON — There is one country that could do a lot to relieve the current high retail prices of diesel and gasoline in Asia, but so far it shows no signs of doing so. China.

The world’s largest crude oil importer also houses much of the spare refining capacity in Asia, and it has the capacity to process additional crude and export refined products.

But China has largely moved away from exports of refined fuels such as diesel and gasoline this year, and shows little sign of recovering from its previous levels of shipments anytime soon.

Content of the article

China only allows exports of refined products under official quotas, mostly granted to large state-owned refiners and not to smaller independent companies that hold much of China’s idle refining capacity .

A further 4.5 million tonnes of export quotas were issued last week, bringing the total for 2022 to 17.5 million tonnes.

However, this is 41% less than the 29.5 million tonnes emitted in the first tranche of last year, and this lack of export quotas shows up in China’s official data for fuel shipments. .

China exported 3.27 million tonnes of refined products in May, down 40% from the same month a year earlier. For the first five months of 2022, refined fuel exports are 38.5% lower than the same period in 2021.

Content of the article

The breakdown by fuel type for May product exports will be released later in June, however, Refinitiv Oil Research said diesel exports were just 230,000 tonnes, or just 55,600 barrels per day (bpd). ) in May, down massively from the official figure of 406,000 bpd. in May last year.

Chinese gasoline exports were higher, with Refinitiv estimating around 268,700 bpd in May, but that was also down from around 425,000 bpd in May last year.

Issuance of some new quotas could lead to a slight increase in exports in June and July, but without small independent refiners being able to participate, shipments from China are unlikely to recover to near 2021 levels.

The lack of Chinese shipments has helped push diesel’s profit margin to record highs, with a typical Singapore refinery earning a margin of $60.57 a barrel on Tuesday producing 10ppm of gas oil, the cornerstone of diesel.

Content of the article

The profit margin on diesel has doubled since the recent low of $31.79 a barrel on May 19, and is also 365% higher than it was at the end of last year.

PETROL, NAPHTHA

The profit margin, or crack, on gasoline production in Singapore has also performed well this year, ending at $28.44 a barrel on Tuesday, around 155% higher than $11.14 at the end of 2021.

However, the gasoline crack has eased somewhat from a record high of $37.27 a barrel on May 20 as high retail prices across much of Asia dampened demand for fuel. mainly used for transporting light vehicles.

It should be noted that not all refined fuels have such strong margins. Crack to produce naphtha light distillate primarily used to make petrochemicals, is currently at a loss of $120.08 per ton, or a loss of about $13.49 per barrel.

Content of the article

It is the largest loss for naphtha manufacturing since the 2008 global financial crisis and reflects weak demand for raw materials in major consumer China amid oversupply as refiners elsewhere try to maximize crude throughput to increase production of profitable fuels such as diesel and gasoline.

Overall, the data indicates that the problem in Asian fuels markets is not a lack of crude oil, but rather a lack of available refining capacity, continued strong demand for diesel and a sharp decline in refined products from China.

Given that China does not look likely to significantly increase its fuel exports in the coming months, high prices for refined fuels are likely to persist to the point of demand destruction.

(Edited by Richard Pullin)