Singapore refining margins, the benchmark for profitability among oil processors in Asia, fell to their lowest in two years, dragged down by lower gasoline margins as refiners have ramped up output after completing maintenance and as China stepped up exports.
Margins at a typical complex refinery in Singapore dropped to $4.28 a barrel at the market close on Monday, the lowest since August 2016, according to Thomson Reuters data. Among oil products, gasoline margins fell the most, dropping by half in the past month to under $5 a barrel. "The (refining) margin weakness was shared globally," said Joe Willis, senior research analyst at Wood Mackenzie, adding that the consultancy's global composite margin fell to $4.20 a barrel during the week of June 18, well below the five-year average of almost $6 a barrel.
"The weakness can be primarily attributed to weaker gasoline cracks. Higher outright crude oil prices are likely to result in slower demand growth, particularly in the US among the peak demand season," he said.
China, which holds the most refining capacity in Asia, increased crude throughput during the first five months of 2018 by 9 percent from a year ago to a record, with the bulk of the increase leading to a boost in output of aviation and motor fuel. Similarly, refineries in Japan, South Korea and Singapore are also ramping up output after completing maintenance earlier in the second quarter.
Asia will also be importing a record 39 million barrels of US crude in July, mainly light grades. That could further lift gasoline and naphtha output and continue to weigh on refiners' profits, said two traders that participate in the market.
"Refineries in the region have been processing lighter crude as the margins for naphtha and gasoline have been quite good up until recently," said a Singapore-based crude oil trader.