Boom time over, fortunes turning for oil refiners in Asia

Oil refiners in Asia are starting to mull a reduction in operating rates after running flat out, following the blowout in processing margins triggered by Russia's invasion of Ukraine.

At least three processors in North Asia are considering cutting total run rates from as early as September as profits from turning crude into fuels such as petrol sank this month, according to company officials, two of whom asked not to be identified as the information is private. The third, from Formosa Petrochemical Corp, said it has cut petrol output, and may in turn reduce overall run rates.

The prospect of a dip in refinery usage heading into the final quarter of the year at a time when China has yet to move fully beyond its anti-virus lockdowns may be an additional headwind for crude oil. Benchmark Brent futures are on course this month to cap their first back-to-back monthly loss since late 2020 as recession concerns and tighter monetary policy battered commodities including energy.

While spot premiums for physical crude cargoes in Asia have climbed this month - suggesting still-solid demand for now - margins on products like petrol have dropped back to levels seen before Russia's invasion of Ukraine as tightness eased. That's squeezing refiners' profits, and may herald a slower pace of operations.

"There may be significant run cuts from September, if the market doesn't improve," said Mr Lin Keh-Yen, a spokesman for Taiwan's Formosa Petrochemical. "Crude runs in August are unlikely to change significantly as diesel and low-sulphur fuel oil margins are still good."

Formosa Petrochemical trimmed petrol output last week by about 5 per cent, and may consider further lowering production of the fuel depending on market conditions, Mr Lin said.

BLOOMBERG