Red-hot refining margins in Asia start to cool

Refiners’ returns from processing petrol down 60% since June

Motorcyclists ride past the PT Pertamina Balongan refinery in Indramayu, Indonesia. (Bloomberg Photo)

Motorcyclists ride past the PT Pertamina Balongan refinery in Indramayu, Indonesia. (Bloomberg Photo)


Asia’s red-hot fuel markets are cooling off as demand starts to ease while refiners keep processing rates high, dragging down the industry’s margins across the region.

Returns from processing petrol in Asia have sunk more than 60% from the record hit in June, while those for diesel have fallen about 25%, according to data compiled by Bloomberg. There may be further declines this quarter as refiners return from maintenance and new capacity comes online, boosting fuel supplies, the energy consultancy FGE has forecast.

The retracement adds to signs that commodities are coming back down to Earth, signalling some relief for governments and motorists that have struggled with surging fuel inflation. The global oil benchmark Brent has sunk back near $100 a barrel, well down from a peak near $140 in March after Russia’s invasion of Ukraine upended markets.

Refining margins have been a hot topic in Thailand, where the government is proposing to tax windfall profits of refiners to prop up the Oil Fuel Fund, which is more than 100 billion baht in debt from subsidising retail fuel prices.

“Fuel demand in Southeast Asia already is feeling the pain from higher prices,” said Emma Li, an analyst at Vortexa. In addition, Japanese and South Korean processors have raised utilisation rates and an arbitrage window for diesel sales to Europe closed, driving an imbalance in regional supply and demand, she added.

In Asia, factory activity in economies such as South Korea, India and Thailand slowed in June as inflation surged. Imports of petrol and diesel across South and Southeast Asia fell 18% that month compared with May, according to Vortexa data.

Despite margins falling, they’re still historically high, especially for diesel, prompting refiners to keep processing as much as oil as possible. Utilisation rates in Asia are estimated to expand by 2.8 percentage points through August, over the 80% seen in June, according to FGE. The consultancy expects the region’s petrol market to flip to a surplus next month while a diesel surplus expands.

The combination of weaker consumption and rising supplies is offsetting the impact of lower fuel exports from China, and potentially from India. China’s allowances this year are about 40% below the volumes at this point in 2021. India recently imposed a tax on flows, spurring expectations for a modest decline in exports.

Source: Bloomberg News