Although refiners in Asia are not left without choice for crude after the end of the U.S. sanction waivers for Iranian oil, the higher price of alternative supplies, as well as soaring fuel exports from China, are depressing refining margins across Asia.
Asian oil buyers haven’t had problems in procuring alternate supplies of crude oil to their usual cheap Iranian supplies, but the barrels replacing Iran’s oil come at higher prices that hurt the profits of refiners across Asia, Reuters columnist Clyde Russell wrote on Friday.
Adding to the loss of Iranian crude, another factor weighing on the refining margins at Asian refiners is the soaring exports to the region of refined oil products out of China, which has been boosting its refining capacity this year.
Last week, reports emerged that persistent pressure on profit margins has forced Asian refiners to start considering a reduction in their run rates as Asia’s refining margins slipped to a 16-year low. Higher international oil prices were behind the unfavorable development, which has seen refiners’ margins drop to the lowest since the spring of 2003, according to Reuters data.
Earlier this month, China issued a new batch of oil product export quotas and they are 5.3 percent higher than they were this time last year as the country’s refineries return to processing record-high amounts of crude oil.
The refining margins across Asia could continue to be depressed in coming months because trade sources expect that Saudi Arabia, the world’s top oil exporter and the main beneficiary of the U.S. sanctions on Iran, will further raise the prices of the crude grades it sells in Asia for July, thanks to strong prompt demand amid tighter oil supply due to the U.S. sanctions on Venezuela and Iran. The official selling prices (OSPs) of Saudi Arabia’s oil, announced at the start of each month for deliveries for the next month, typically set the trend of crude pricing of the other oil producers from the Persian Gulf.