Singapore refinery profits at two-year low as naphtha joins glut
(Reuters) Singapore's oil refining profits dropped to two-year lows Wednesday, in the latest sign that the industry is pumping out too much fuel for the market to absorb.
Refinery margins DUB-SIN-REF in Singapore, the Asian benchmark, fell to $2.94/bbl Wednesday, down over 70% since January and its lowest level since August 2014.
The glut was triggered by an oversupply of gasoline GL92-SIN-CRK and diesel, but it has since spread to naphtha, a light distillate product mainly used as a petrochemical feedstock but which can also be blended into gasoline supplies.
Singapore's margins for naphtha NAF-SIN-CRK have crashed 88% this year to $17.15/ ton, a sharp decline from $190 just two years ago and well off its long-term average of $103/ton.
As a result of the glut, Singapore's light distillate inventories STKLD-SIN have swollen by over 2 MMbbl since late June to 15.1 MMbbl currently, a near record level, as refiners put unsold fuel into storage.
Oystein Berentsen, managing director for crude at oil trading firm Strong Petroleum in Singapore, said once all storage possibilities had been exploited, refiners would have to cut back their crude processing runs and instead start selling down fuel from storage.
"Once the product tanks are full..., then you know that the situation is bad. You have to cut runs," he said.
Many refiners, however, are reluctant to cut runs as long as they make some cash.
"We have no plan for run cuts," said Lee Yunhi, head of corporate planning at SK Energy, during a recent call with analysts.
Toshiaki Sagishima, executive officer at Idemitsu Kosan Co., Japan's No. 2 oil refiner by sales, said last week the company more than tripled its oil product exports during the April to June period to 2.18 MMbbl as international margins are better than those in Japan.
Japanese refiners said that beyond maintenance outages they were unlikely to stop selling fuel abroad as long as it generates some profit.
Meanwhile, Chinese gasoline exports have almost doubled since the beginning of the year, to a record 9.3 MMbbl in June, and diesel exports remain near record highs of over 8.25 MMbbl.
Despite Brent crude trading relatively cheaply in the low $40/bbl, the outlook for refiners remains gloomy.
"In 2012 - 2014 Brent averaged $106/bbl... and refining margins $3/bbl... In 2016 - 2018 consensus expects average Brent of $56/bbl... and $/bbl refining margins," researchers at AB Bernstein said this month.
Reporting by Henning Gloystein; Additional reporting by Jane Chung, Osamu Tsukimori, and Li Peng Seng and Mark Tay; Editing by Christian Schmollinger
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