Tanker trucks are seen among oil tankers docked at the port of Tuxpan, in Veracruz state, Mexico. (Reuters Photo)
By Ahmad Ghaddar, Trixie Yap and Shariq Khan
LONDON/SINGAPORE/NEW YORK- Oil refiners in Asia, Europe and the United States are facing a drop in profitability to multi-year lows, marking a downturn for an industry that had enjoyed surging returns post-pandemic and underlining the extent of the current slowdown in global demand.
The weakness is a further sign of soft consumer and industrial demand, especially in China, because of slowing economic growth and rising penetration of electric vehicles. New refineries coming on stream in Africa, the Middle East and Asia have added to the downward pressure.
Refiners such as TotalEnergies and trading firms such as Glencore saw bumper profits in 2022 and 2023 as they cashed in on supply shortages caused by Russia’s invasion of Ukraine, disruptions to Red Sea navigation by Houthi militants, and a big recovery in demand following the COVID-19 pandemic.
“It’s certainly looking like the refining supercycle that we’ve experienced over the past few years may now be coming to an end, with supply from newly inaugurated refineries finally catching up with slower-growing fuel demand,” Commodity Context analyst Rory Johnston said.
Singapore refining profits, a bellwether for Asia, fell to $1.63 a barrel on Sept. 17, a seasonal low since the same period in 2020. Asia’s diesel margins crashed to a three-year low on the same day, according to LSEG data.
The weak Chinese economy is a key reason. Industrial output growth in the world’s top oil importer fell to a five-month low in August while oil refinery output fell for a fifth month as weak fuel demand and soft export margins curbed production.
In top consumer the United States, where demand has also lagged expectations, the 3-2-1 crack spread a key measure of overall profitability, slipped below $15 a barrel in late August for the first time since early 2021. The 3-2-1 spread approximates US refiners typical yield of two barrels of gasoline and one of diesel from every three barrels of oil they process. – Reuters
