Asia oil refiners mull run cuts after margins hit lowest for season since 2003 - sources, data

Reuters
FILE PHOTO: China National Offshore Oil Corporation's (CNOOC) oil refinery is seen in Huizhou, China's southern Guangdong province July 28, 2009. REUTERS/Tyrone Siu/File Photo

By Florence Tan and Seng Li Peng

SINGAPORE (Reuters) - Asia's oil refiners are considering reducing output after margins slumped to their lowest for the season since 2003, according to industry sources and Refinitiv data.

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, four people familiar with the matter said.

In China, independent refiners known as 'teapots', which account for about a fifth of the country's crude imports, operated at below 50% of capacity on average in April through May, versus 64% in the first quarter, said Zang Wengang, an analyst with Sublime Information Co.

A spokeswoman for SK Innovation spokeswoman declined to comment, while SRC did not respond to a request for comment.

The people familiar with the matter declined to be identified because they are not authorised to speak to media.

Rising crude purchasing costs have hit refiners' bottom line. "We plan to lower (the operating rate) a bit...soon," one of the sources said.

Spot crude cargoes have sold at multi-year high premiums as U.S. sanctions on Iran and Venezuela reduced supplies for Asia while a crisis in Russia over contaminated crude boosted Brent prices.

Meanwhile excess supplies of light products, gasoline and petrochemical feedstock naphtha have squeezed margins further.

Margins at a refinery complex in Singapore are at their lowest for this time of the year since 2003, even narrower than lows seen in 2009's global financial crisis, Refinitiv data showed.

The profits are more than $3 a barrel lower than the average for the past decade since 2009.

The outlook for margins remains bleak.

Next month, Middle East producers led by top exporter Saudi Arabia are set to raise official selling prices (OSP) for a fourth straight month to track stronger spot markets.

Crude prices "are too high while product cracks (profit margins) are getting worse," another source from a north Asian refiner said.

"Aromatics margins are getting worse so refiners will try to optimise as much as possible," the person said, referring to profits for paraxylene, a petrochemical used to make textile and plastic bottles.

Asia's naphtha physical crack on Wednesday hit a six-month low at a discount of about $9 a barrel to Brent crude, lower than that for fuel oil.

Asia's naphtha supply from the west had remained high despite lower demand caused by ongoing cracker maintenance, outages at plants in Taiwan and Japan and an extended shutdown at a naphtha cracker in South Korea. [O/ACRACKER] [O/NAPARB]

(Reporting by Aaron Sheldrick in TOKYO, Jane Chung in SEOUL, Nidhi Verma in NEW DELHI, and Chen Aizhu, Seng Li Peng, Jessica Jaganathan and Florence Tan in SINGAPORE; Editing by Kenneth Maxwell)