SINGAPORE: Asian oil refiners are reaping their highest profits ever this week, spurred by higher fuel demand during peak holiday seasons as more economies recover from the COVID-19 pandemic while the region ramps up exports to Europe to replace a Russia shortfall.

Profit margins for a complex refinery in Singapore, the bellwether for Asian refiners, tipped over $20 a barrel on Wednesday.

Gasoline, diesel and jet fuel crack spreads hit new highs of $22, $46 and $36 per barrel respectively amid a transport boom as more economies ease COVID restrictions. But supply remains tight following lower fuel exports from China and disruption to trade flows of Russian oil due to international sanctions, said Hui Ting Sim, an analyst at Moody’s Investors Service.

“The recent surge in diesel crack spreads driven by shortages in Europe will also push refiners to ramp up output of diesel over gasoline, thereby reducing gasoline supply,” he added. Strong margins will benefit export-oriented refiners such as South Korea’s SK Energy and S-Oil Corp, as well as Taiwan’s Formosa Petrochemical Corp.

However, refiners may have little room to squeeze out more fuel because most are already running at full capacities, traders said. “Refiners are already maxing out. Everybody wants to run more but there is not really much spare capacity except for China,” said an analyst at a North Asian refiner. China’s March crude throughput fell to its lowest level since October and is expected to fall further as a surge in crude oil prices squeezed margins and tight COVID lockdowns hurt fuel consumption.

Western sanctions on Russia have hit exports from the world’s top crude and oil products exporter combined. That has crimped supplies of diesel and refining feedstocks such as vacuum gasoil just as peak consumption seasons like the Eid festival in May and US summer driving kick in. “In addition to the potential reduction of Russian gasoil supply going forward, without sufficient gas supply in the EU to power industries and power stations, demand on diesel is expected to increase as well,” a Singapore-based trader said. Diesel and gasoline margins are expected to soar further, he added.

On Wednesday, Russia cut gas supplies to Poland and Bulgaria for refusing to pay in roubles, cranking up retaliation for Western sanctions imposed over Moscow’s invasion of Ukraine. Russia calls its actions in Ukraine a “special operation”.