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Asia gasoline refiners set to recover after glut


Many Asian gasoline refiners have started to recover from one of the sector’s worst-ever gluts, with profit margins climbing as consumption grows and as stricter fuel specifications in top consumers force some inefficient producers to cut supply.

A series of refinery fires and maintenance outages are also boosting demand for gasoline from facilities that are still operating.

The profit margin for refining gasoline, known in the industry as the ‘crack’, averaged $11.10 a barrel from Jan. 1-27, lower than $15.80 for the same period last year but higher than any other year on record.

“The rally in Singapore margins since the beginning of the year was extended this week, and Singapore margins are up by 24 percent since the beginning of the year on a 4-week rolling average,” investment bank Jefferies said in a note on Friday.

The juicy margins early last year were self-destructive as refiners ramped up gasoline production in a race for profit, prompting a crash in margins as so much fuel flooded the market that it had to be stored on chartered tankers.

But, a similar plunge in margins is not expected this year as facility outages will hold back some supply. They include an extended refinery outage in Abu Dhabi and two upcoming maintenance closures in Indonesia, Asia’s top gasoline importer.

Further supporting gasoline margins have been several fires and other unplanned outages in places such as India, Japan, Singapore and the United Arab Emirates.

“Gasoline supplies will be tighter in 2017 versus 2016,” said Nevyn Nah of consultancy Energy Aspects, adding that Asia’s supply would exceed demand by 176,000 barrels per day (bpd) in 2017, versus 206,000 bpd in 2016.

A big longer-term driver for higher cracks are new regulations in the world’s biggest car markets curbing the sulphur content of fuel.

Churning out that cleaner fuel requires efficient refineries, with energy consultancy Energy Aspects saying the rules could force some operators to shut older units instead of spending cash to upgrade them, crimping gasoline supplies.

China capped sulphur content in gasoline at 10 parts per million (ppm) from the start of the year, down from 50 ppm, with the United States expected to take similar steps.

“Changes in fuel specifications this year in the U.S., China and India are not trivial. Supplies will be impacted,” said Nah.

Healthier returns for making other fuels like diesel could also prevent refiners from overproducing gasoline as they did in 2016.

Analysts said that gasoline markets were currently well balanced overall.

“We expect the gasoline market to be finely balanced through summer this year, which is quite supportive of cracks. Demand growth continues to be strong,” said Sri Paravaikkarasu of energy advisory FGE.

Source: Reuters

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