Diesel Slump Threatens Refinery Margins
Asian diesel prices have slumped to their lowest level in a year, raising the prospect of further losses for refineries, traders said on Wednesday. "Profit margins are hanging precariously on the positive and could easily slip into the red," said a senior oil trader with an European refinery.
Traders said Singapore refiners were making a mere 10-20 cents on a barrel of crude at the basic stage of refining, based on current Saudi light crude prices. This compares with profits of around $1 per barrel in May.
On Tuesday, diesel was traded at its lowest level in nearly a year on the Singapore benchmark market. British Petroluem (BP) sold a 150,000-barrel cargo for $22.90 a barrel and Mobil sold a cargo of the same size for $23 a barrel, both for loading between June 25-29. In early June, diesel was selling for around $25.50. A trader involved in one of the deals said current prices reflected bearish fundamentals. "Brimming inventories and the lack of demand have driven prices downwards," he said.
Since early June, Brent crude futures on the International Petroleum Exchange have fallen by around $2 a barrel, traders said. They said the more drastic fall in diesel prices compared with crude sparked concerns that refineries may cut output.
"Margins are very volatile recently. Just on Monday, Singapore refining profits looked good after crude plunges over the weekend, but now I am not so sure," said a trader at an European refinery.
Traders said falling diesel prices were a "cumulative effect" sparked off by a rush of supplies to Asia from the West, where prices were considerably lower. "Then, an economical arbitrage window opened the flood gates for up to three million tonnes of oil from the West," said the trader. "The buying spree by a handful of players was able to absorb all arbitrage supplies, but now the key players providing the support are less aggressive," he said.
Traders said India's thin imports in June at 270,000 tonnes, compared with its July purchase of more than 850,000 tonnes, contributed to the weakness in the market. Imports by China, Asia's largest diesel consumer, have also dwindled. In June, China imported just 430,000 tonnes of diesel, well below its monthy average of over 700,000 tonnes. But it is not all doom and gloom, traders said. India was expect to increase imports sharply in July and that would support the price, traders said. (Reuter)