Some Asian refineries plan to increase output in May to cash in on high prices for gasoil exports to Europe, even as the steepest crude prices for 14 years threaten profit margins, numerous trade sources said.
European diesel supplies have shrunk following the disruption of western sanctions imposed on Russia in response to its invasion of Ukraine, which it describes as a “special operation”.
Russia is the world’s top exporter of crude and oil products combined, at around 7 million bpd, or 7 percent of global supply, the International Energy Agency said. Europe relies on Russia for 60 percent of its diesel imports, Citibank said.
Strong European demand has boosted Asian refiners’ profits for producing gasoil for exports to the West. However, Asian refiners are also paying record premiums for Middle East crude supplies after the disruption of sanctions left buyers with limited options.
Indian state refiners have increased crude runs to boost oil product exports to offset some of the losses they have incurred for selling gasoline and gasoil at lower rates in the domestic market.
Asia’s top fuel exporter Taiwan’s Formosa Petrochemical Corp will also raise output, while South Korean refiners are already maximizing their exports.
“High product cracks, especially in gasoil will encourage full capacity refinery runs even if it means exports rather than taking refinery maintenance shutdowns generally planned in Q2,” Hindustan Petroleum Corp Ltd’s Chairman M K Surana told Reuters.
Last week, Indian Oil Corp bought 9 million barrels of spot crude as it delays maintenance at its Paradip refinery.
“In the current environment, exporting fuel is very attractive but we have to first meet Indian demand,” an official at one of the state refiners said on condition of anonymity.
Indian refiners, which buy most of their oil under annual contracts, are geared towards maximizing diesel output as the fuel accounts for about two fifths of refined products consumption in the country.
“We like Asian complex refiners as the current record-high Europe diesel price premium will incentivize arbitrage flows from Asia and tighten supply,” Citi equity analyst Oscar Yee said in a note, adding that South Korea’s S-Oil Corp and SK Innovation, owner of Korean top refiner SK Energy, were among its top picks. – Reuters
