Singapore refinery profits crash to two-year low as naphtha joins glut

By Henning Gloystein

SINGAPORE (Reuters) - Singapore's oil refining profits dropped to two-year lows on Wednesday, in the latest sign that the industry is pumping out too much fuel for the market to absorb.

Refinery margins in Singapore, the Asian benchmark, fell to $2.94 per barrel on Wednesday, down over 70 percent since January and its lowest level since August 2014.

The glut was triggered by an oversupply of gasoline and diesel, but it has since spread to naphtha, a light distillate product mainly used as a petrochemical feedstock but which can also be blended into gasoline supplies.

Singapore's margins for naphtha have crashed 88 percent this year to $17.15 per tonne, a sharp decline from $190 just two years ago and well off its long-term average of $103 per tonne.

As a result of the glut, Singapore's light distillate inventories have swollen by over 2 million barrels since late June to 15.1 million currently, a near record level, as refiners put unsold fuel into storage.

Oystein Berentsen, managing director for crude at oil trading firm Strong Petroleum in Singapore, said once all storage possibilities had been exploited, refiners would have to cut back their crude processing runs and instead start selling down fuel from storage.

"Once the product tanks are full..., then you know that the situation is bad. You have to cut runs," he said.

Many refiners, however, are reluctant to cut runs as long as they make some cash.

"We have no plan for run cuts," said Lee Yunhi, head of corporate planning at SK Energy, during a recent call with analysts.

Toshiaki Sagishima, executive officer at Idemitsu Kosan Co, Japan's No. 2 oil refiner by sales, said last week that the company more than tripled its oil product exports during the April to June period to 347,000 kilolitres (2.18 million barrels) as international margins are better than those in Japan.

Japanese refiners said that beyond maintenance outages they were unlikely to stop selling fuel abroad as long is it generates some profit.

Meanwhile, Chinese gasoline exports have almost doubled since the beginning of the year, to a record 1.1 million tonnes in June (9.3 million barrels), and diesel exports remain near record highs of over 1 million tonnes (8.25 million barrels).

Despite Brent crude trading relatively cheaply in the low $40s per barrel, the outlook for refiners remains gloomy.

"In 2012 - 2014 Brent averaged $106 per barrel... and refining margins $3 per barrel... In 2016 - 2018 consensus expects average Brent of $56 per barrel... and $3 per barrel refining margins," researchers at AB Bernstein said this month.

(Additional reporting by Jane Chung in SEOUL, Osamu Tsukimori in TOKYO, and Li Peng Seng and Mark Tay in SINGAPORE; Editing by Christian Schmollinger)