Oil refiners use crack spreads to hedge against any adverse price movements that may affect their profit margins. Mar 29, 2020 the crack is an industry term that refers to the process of breaking apart crude oil into different components, including gaseous products such as propane, heating fuel, gasoline, light. May 10, 2019 lackluster gasoline, naphtha markets pummel asian refining margins. Asia refiners run cuts cant keep pace with plunging fuel margins 492020 asia pacific oil refineries are finding that processing cuts are not keeping pace with sharp drops in fuel margins, which hit record lows this month, caused by the demand decline from the economic dislocations of the coronavirus outbreak. If you look at the current margins, it does look bad, but 2020 is shaping up to be a better year for refining in asia, said victor shum, vice president of energy consulting at ihs markit ltd. Cheap crude stoked demand for motor fuels, and the oil majors benefiting from very large margins on refining. Some chinese refiners are also curtailing refinery runs in the third quarter as massive refinery startups. Asia s refining margins rebound to nearly 2year high. The refining marker margin rmm uses regional crack spreads to calculate the. Asia oil refiners mull run cuts with margins at 16year low. New refining capacities come online at a time when oilproduct markets are oversupplied with rising exports from the us, middle east and china, putting downward pressure on product crack spreads and refining margins.
Switchovers in refinery configurations stepping up gasoline production for the summer, then resetting to produce. The decrease in the wtibrent differential has resulted in a drop in the profitability of refinery margins in the us. Refinery margins in both europe and asia trended higher over much of august, hitting their highest levels since hurricane harvey in 2017. The bulk of the shut capacity was 500,000 bd between two chinese refineries. For example, asian refining margins have weakened over recent months to the point that certain crack spreads have been flirting with negative territory. Asian jet fuel refining margins posted their biggest weekly decline in over a decade, as aviation fuel remains among the commodities that have been hit. Planned maintenance at asian refineries in the second quarter of this year is. Supply cuts lift asia oil refining margins to highest. Update 2asia oil refiners mull run cuts with margins at 16. Crack spreads are a simple measure based on one or two products produced in a refinery usually gasoline and distillate fuel. Asia oil product prices similarly tanked on monday but at a rate slightly lower than crude, which meant that refining margins actually rose for most products. Asia distillatesgasoil crack holds but refining margins. Asia distillatesjet fuel refining margins drop, cash. However, thanks to almost 12 million barrels per day mmbpd of refining capacity added since 1995, the region now has surplus distillate and gasoline production.
One type of crack spread contract bundles the purchase of three crude oil futures 30,000 barrels with the sale a month later of two unleaded gasoline futures 20,000 barrels and one heating oil future 10,000 barrels. Nov 14, 2016 refining margins are thus dependent on input crude oil cost, product slate, and prices of refined products. Refinery margins are a measure of the value contribution of the refinery per unit of input. According to new data from the eia, refining margins for motor gasoline have fallen to fiveyear lows. Although april gasoline crack spreads in asia did not. Crack spread is a quickanddirty approximation of refining margin. Computing refining margin requires detailed proprietary information or estimates of a refinery s crude slate, product slate, and all the corresponding refinery gate prices. Asia is drowning in chinese fuels and things are about to get worse over the next three years as new refining capacity in the worlds secondlargest economy begins operating. The average gross refining margin reported by the frs companies in 2009 fell 38 percent compared with 2008. Asia oil refiners mull run cuts with margins at 16year.
Asia distillatesgasoil crack holds but refining margins fall by fawad maqsood on june 17, 2019 singapore. Singapore reuters a weak light oil distillates market, awash in supplies, has sent asia s. Companies that planned to trim output include sk energy, a unit of sk innovation, the singapore refinery company src, owned by petrochina and chevron corp and at least one refiner in thailand, five people familiar with the matter said. Meanwhile, asian jet fuel refining margins turned negative for. What crashing refining margins mean for oil markets. Asia oil refiners resist run cuts despite recordlow margins. The refining marker margin rmm uses regional crack spreads to calculate the margin indicator and does not include estimates of fuel costs and other variable costs. Jun 17, 2019 asia distillatesgasoil crack holds but refining margins fall.
Asia distillatesgasoil cash premiums, refining margins climb. Refiners are having to pay to produce gasoline marketwatch. Singapore icisasia naphtha prices are languishing at 18year lows while the products crack spread, a measure of its refining margin, has. Crude oil crack spreads to put the big squeeze on refiner q4 results. Asia distillatesjet fuel refining margins drop, cash discounts widen april 20, 2020 singapore, april 20 reuters asian refining margins for jet fuel tumbled on monday, despite weaker raw material crude prices, which could do little to relieve the pressure on the aviation fuel market created by the coronavirus pandemic. This should be bullish for crude demand, but refinery utilization rates bear watching given that margins are weak in many regions, particularly in asia and europe. At the same time, india, the worlds thirdlargest crude importer, has ramped up fuel exports despite poor margins and deepened refinery run cuts to cope with a fuel supply surge. Apr 09, 2020 asia pacific oil refineries are finding that processing cuts are not keeping pace with sharp drops in fuel margins, which hit record lows this month, caused by the demand decline from the economic. Singapore, march 1 reuters sweet crude cargoes are gradually clearing in the asia pacific crude market, with most of the vietnamese supplies staying within the country, traders said on thursday. But some asian refining margins strengthened slightly despite a slight.
Asian jet fuel refining margins have turned negative for the first time in over. Asia distillatesgasoil cracks dive to lowest seasonal levels in 7 years. The spread approximates the profit margin that an oil refinery can expect to make by cracking the longchain hydrocarbons of crude oil into useful shorterchain petroleum products. Oil 101 refining business drivers downstream oil and gas. Singapore icis asia naphtha prices are languishing at 18year lows while the products crack spread, a measure of its refining margin, has fallen to negative territory amid bearish market conditions. The spread approximates the profit margin that an oil refinery can expect to make by cracking the longchain hydrocarbons of crude oil into useful shorterchain. How refining margins are key indicators of refining. Refining margins in asia showed an even stronger upward trend at the end of the year than those in europe. Crack spreads are differences between wholesale petroleum product prices and crude oil prices.
Daily figure is based on last five 5 days rolling average. Lackluster gasoline, naphtha markets pummel asian refining. An introduction to crack spreads today in energy u. Asia s gasoline crack on friday moved further away from a near sixmonth low hit earlier in the week, amid hopes that refinery turnarounds in the middle east will help draw on. The crack spread contract helps refiners to lockin a crude oil price and heating oil and unleaded gasoline prices simultaneously in order to establish a fixed refining margin. Jet fuel refining margins turn negative as airlines ground fleets. Reviewing the refining indicator trend can help you understand the current direction of the companys refining margin. Some refiners across asia have shut down for maintenance, and others have reduced fuels production after asias refining margins slipped to a 16year low in may. With crude oil prices likely to remain well supported for the remainder of 2018, margins could come under further pressure.
Asia naphtha crack spread deepens in negative zone. The recovery in refining margins in asia coincides with a heavy refinery maintenance season, which peaked in october with about 1. Typically this is per barrel of crude oil processed, but it could also include other feedstocks as inputs refiners typically measure margins at several levels to measure different dimensions of performance. Asias gasoline, naphtha cracks surge on saudi attacks. Asia distillatesjet fuel cracks post weekly drop, front. Asia pacific refining 2019 roundup stratas advisors. Asia distillatesjet fuel refining margins post record weekly. Asia pacific oil refineries are finding that processing cuts are not keeping pace with sharp drops in fuel margins, which hit record lows this month, caused by the demand decline from the economic.
The source for financial, economic, and alternative datasets, serving investment professionals. Southeast asia and pacific refineries mckinsey energy. Asia oil refiners consider run cuts with margins at 16. Asia naphthas crack spread turns negative on bearish outlook icis. Crack spreads are down, and that tells us something about refining margins because risking crack spreads increase earnings for refiners. Oil 101 refining business drivers downstream oil and gas this oil 101 refining module discusses refinery margins, the crack spread, refinery profitability. Asia refiners run cuts cant keep pace with plunging fuel.
Dec 06, 2019 asian refining margins for jet fuel rose on friday, posting their second straight weekly increase, amid expectations for winter heating demand for closely related kerosene. Crack spreads are essentially the economics of refining a barrel of crude oil into its. Low crude oil prices, increased gasoline demand lead to high. Jul 12, 2019 asia oil refining margins have more than tripled in the past three weeks to hit their highest since september 2017, refinitiv data showed on friday, after refiners cut output and tightened fuel. Some refiners across asia have shut down for maintenance, and others have reduced fuels production after asia s refining margins slipped to a 16year low in may.
Asia naphthas crack spread turns negative on bearish. Nov 25, 2019 another measure of refinery profits is known as gross refining margins, which measures the incentive a refiner has to process an additional barrel of crude, and not total profit derived from all. Supply cuts lift asia oil refining margins to highest since. Meanwhile, asian jet fuel refining margins turned negative for the first. The singapore cracking margin against dubai crude widened. Mar 20, 2020 asian jet fuel refining margins posted their biggest weekly decline in over a decade, as aviation fuel remains among the commodities that have been hit the hardest by the coronavirus epidemic with. Asia s jet fuel refining margins, for example, recently fell to their lowest levels in over ten. This time around, the narrowing margins for gasoline is illtimed since it is also. Imo 2020, china output pummels asian refinery margins.
Unknowns about the future growth rate of the world economy, the price of crude oil, government regulations, as well as the economics of alternative transportation fuels are causing many uncertainties for the industry. Asia distillatesgasoil cracks plunge on muted demand. Singapore, july 12 reuters asia oil refining margins have more than tripled in the past three weeks to hit their highest since september 2017, refinitiv data showed on friday, after refiners cut output and tightened fuel supplies. Asia distillatesgasoil crack holds but refining margins fall. The average profitability contribution to net income divided by net investment in place or return on investment roi of u. Refinery margins in asia have been knocked to the lowest since the financial crisis in 2008 by some measures, as the industry grapples with the disparate factors. It is an industryspecific type of gross processing margin. Crack spreads are essentially the economics of refining a barrel of crude oil into its constituent products and can be used as a proxy to gauge demand for various distillates. Crude oil crack spreads to put the big squeeze on refiner.
These spreads are often used to estimate refining margins. Asian refining margins rise to 15month high on strong jet. Update 2supply cuts lift asia oil refining margins to. Asia distillatesjet fuel refining margins post record. While all regions showed stronger margins, the us west coast continued to lead the rise, driven by unplanned regional refinery outages as margins hovered near record levels. Asias q2 planned refinery maintenance to shut 65% more capacity. Jan 10, 2018 crack spread refers to the overall pricing difference between a barrel of crude oil and the petroleum products refined from it. Crack spread is a term used on the oil industry and futures trading for the differential between the price of crude oil and petroleum products extracted from it. Refining marker margins are simplified regional margin indicators based. Virus crisis a killer for global oil prices asia times.
The new rules of the global oil market rbc wealth management. The nymex gasoline crack spread, a rough measure for how much refiners make from producing the motor. The rmm is similar to the approach used by many of our competitors. In this sense, the refining margin is an indicator of the overall profitability of a. There is, in fact, a seasonality to these crack spreads and refining margins. Refinery reference desk mckinsey uses cookies to improve site functionality, provide you with a better browsing experience, and to enable our partners to advertise to you. Asia s oil refiners are considering reducing output after margins slumped to their lowest for the season since 2003, sources said. Asia distillatesjet fuel cracks post second straight weekly gain. The record runs are squeezing the oncemighty profit margins for refiners. Asia oil refining margins have more than tripled in the past three weeks to hit their highest since september 2017, refinitiv data showed on friday, after refiners cut output and tightened fuel. The future of oil refining profit margins by brad vantassel in recent years, oil refining margins have been extremely volatile.
It has been a different story in the us, where record run rates have weighed on margins. Detailed information on the use of cookies on this site, and how you can decline them, is provided in our cookie policy. Oil prices have plunged to oneyear lows, but refiners in certain parts of the u. For example, asian refining margins have weakened over recent months to the point that certain crack. Asias refining margins rebound to nearly 2year high. According to new data from the eia, refining margins for motor gasoline. Refining margin is the difference between total revenue from refined product sales and total costs of all crude oil and other refinery inputs. Exports or imports the future of asian refining industry commentary abstract the asia pacific region has traditionally been a major importer of refined products.
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