SINGAPORE/SEOUL- Equity analysts have cut their earnings forecasts for Asia’s oil refiners as a surge in oil tanker freight rates and crude premiums offset an expected boost in refining margins.
With an outlook for slumping profits amid squeezed margins, shares of top Asians refiners such as China Petroleum and Chemical Corp (Sinopec), Japan’s Holdings and South Korea’s SK Innovation may come under pressure in the coming months.
Spot market freight rates for crude cargoes from the Middle East to Asia recently surged to a record following US sanctions on Chinese tanker companies on Sept. 25. Meanwhile, crude premiums climbed to their highest in years following an attack on Saudi Arabian oil facilities on Sept. 14 that knocked about 5 percent of global supply offline.
The rising costs could offset an expected boost in refining margins in the fourth quarter from strong gasoil and very low-sulphur fuel oil (VLSFO) demand as ships switch to cleaner fuels to comply with the International Maritime Organization’s (IMO) mandate for low-sulphur shipping fuel from 2020.
Sinopec, Asia’s largest refiner, is the most vulnerable to the higher freight costs as 70 percent to 80 percent of its shipping costs are based on spot rates, Citi’s refining equity analysts said, adding the company’s 2020 earnings could drop by 5 percent if margins fall by $3 barrel for a quarter. – Reuters