Asian refiners face double blow to profits from Iran

2 June, 2021 12:00 AM printer

SINGAPORE: Asian refineries are grappling with what’s expected to be a brief period of weak profits as a demand-sapping Covid-19 comeback across the region coincides with a likely surge in oil-product exports from Iran.

The virus resurgence in India and other nations apart from China is reducing consumption of products such as gasoline and jet fuel, squeezing the profit margins of refiners. The market is also bracing for the possibility of a boost to Iranian fuel oil supplies into Asia should a nuclear deal be revived, report agencies.

That’s led to complex refining margins in Singapore, a proxy for Asia, falling from US$1.65 a barrel at the end of April to as low as US3 cents in mid-May. While it’s a setback for processors recovering from the pandemic, margins have rebounded slightly and are expected to resume an upward trajectory as soon as the third quarter with accelerating vaccination rates aiding demand.

The average profit from converting crude into gasoline in Asia - the so-called crack spread - fell in May from April, snapping a three-month gain. Across the region, restrictions in place from Malaysia, Vietnam to Japan sapped demand for transportation fuel, with oil consultancy FGE seeing India’s gasoline consumption as the “biggest stumbling block to Asia’s demand recovery” with an estimated 20 per cent fall in April through June versus the previous quarter.

“Export is not a very attractive option,” said N Vijayagopal, the finance director at Bharat Petroleum Corp, India’s second biggest fuel retailer. Refiners across the country are facing a double whammy caused by weaker regional markets and lower domestic consumption that’s prompting them to set aside earlier plans to maintain run rates and reduce operations instead.

Complex refining margins in Singapore were at US80 cents a barrel on Friday and have averaged US71 cents in May. That compares with US$2.41 in the same period in 2019, prior to the pandemic. The profit from converting crude to gasoline in Asia was at US$7.89 on Monday and have averaged US$8.47 in May.

Most are expecting a flood of crude should the nuclear accord be renewed with Iran, but it’s the prospect of rising fuel oil flows - used to power ships and for electricity generation in some countries - that’s raised concerns for Asian refiners, especially as China boosts output of heavy fuel.