Refining margins remain firm in Jan despite crude fall

Crude oil prices are down 60% from their peak in 2014. And on a month-on-month basis they are down 22%. Despite the continued downswing in crude prices, refining margins have held on.

The benchmark Singapore GRMs averaged at $7.5/barrel in January, thanks to supportive spreads. According to analysts, gasoline and gas oil spreads at $11.3/barrel and $16.5/barrel, respectively. Naphtha and fuel oil spreads too have shown an improvement through January.

Despite the sharp fall in crude oil prices, analysts expect refining margins to remain stable in the near-term for a number of reasons. For starters, 10% of US refining capacity is remains closed due to striking workers. Also, this is the time when globally refineries shut down for maintenance work.

Thirdly, inventory levels continue to be high in most refineries, which would support margins. According to Religare Institutional Research, refining margins are expected to remain largely firm on reduction in throughput through February and first quarter of calendar 2015.