Asia-Pacific oil refiners will shut 1.088 million barrels per day (bpd) of capacity for second-quarter maintenance, just above last years level, helping temper pressure on margins as new plants start up. Planned, reported outages will shut in about 4.3 percent of the regions total capacity, according to a Reuters survey based on average aggregate offline capacity from April through June.
Last year, when margins rose on a major China buying binge ahead of the Olympics, routine maintenance came to about 1.066 million bpd of the regions capacity, but this years seasonal shutdowns come as many plants are already operating at lower rates to draw down brimming diesel stocks. "Margins are softer now, so refiners will take a more casual shutdown without economic penalty," said John Vautrain, an energy consultant with Purvin & Gertz in Singapore.
Japan, the worlds No 3 oil user, takes the lead with 479,000 bpd of capacity shut in the spring, up from 421,000 bpd last year, as demand takes a beating from the worsening recession, forcing several refiners to cut crude runs. Second-largest consumer China will take 106,000 bpd of crude units offline, more than halving the year-earliers 302,000-bpd shutdown, even as more than 1 million bpd of new and upgraded capacities come online in the region this year, forcing more refiners to push for exports.
The slightly heavier schedules and run cuts could offer some relief to profit margins for distillates like diesel, which make up about half of a typical refinerys output, as demand has been hard hit by the slowdown in industrial activity. Profit margins for complex refiners in Asia processing Dubai crude have slid more than $1 to $4.11 a barrel, Reuters data show, down from $6.21 this time last year.
The margin for processing the Middle East marker crude into diesel in the Singapore oil hub for April is hovering near three-year lows around $7.00 a barrel. "There is no (import) demand from China while South American countries are taking (diesel) supplies from the United States. So the outlets are very thin, only Europe and Australia," said Akira Kamiyama, a derivatives trader at Mitsui & Co, Japans No 2 trading firm.
"Gasoline cracks are very nice but middle distillates are the key products. It will be a tough year for Singapore refineries." Gasoline has thus far held up overall margins, with a likely rise in exports from state-run Sinopec Corp and PetroChina helping need a demand surge from Vietnam and in particular Indonesia, where supplies have been upset by persistent outages at a major gasoline-making unit.
"Gasoline demand is strong in Vietnam thanks to cheap prices," said one trader in Hanoi. While Vietnam commissioned its first-ever refinery just last month, the 140,000-bpd Dung Quat plant will only run at full capacity in August, forcing it to maintain higher imports. Demand has also been strong in Australia, especially since no firm date has been fixed yet for Royal Dutch Shell Plc to restart the 85,000-bpd Clyde refinery.
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