Global gasoline cracks collapse, blow to refiners' profits: Report

A sudden crash in global gasoline prices in the past two weeks has dented refiners’ profits, pushing up inventories in key trading hubs around the world while looming exports from China and India also add to pressure on growing stockpiles.

Refiners will be forced to cut gasoline output to safeguard themselves against losses and switch to producing more profitable fuels, traders say, but summer demand is also being hurt by high pump prices in the United States and Europe, and by instability and easing seasonal demand in some parts of Asia.

Asia’s top fuel exporter Taiwan’s Formosa Petrochemical Corp could reduce operating rates at their residue fluid catalytic cracking (RFCC) units, which are now running at full capacity, by 5 per cent in the coming weeks.

Asian gasoline margins have plunged more than 102 per cent in July to a discount of 14 cents a barrel to Brent crude after hitting a record at a premium of $38.05 a barrel in June, Refinitiv data showed. They are also at the lowest for this time of the year since at least 2000.

That has depressed Asian refining margins to 88 cents a barrel over Dubai crude on Monday, tumbling from a record $30.49 in June.

Chinese state refiners are expected to raise refinery runs in August-September and increase exports to lower high domestic stocks after receiving new quotas, industry sources said.

One of the sources estimated national crude throughput could claw back to 14 million barrels per day or higher, after staying under that level for most of the past 12 months partly because of Covid-19 lockdowns.

First-half July gasoline imports into Asia dropped 240,000 tonnes from second-half June levels led by Indonesian declines, Asia's largest gasoline importer, FGE said in a note.

FGE expects Asian gasoline demand, excluding China, to improve only marginally between July and September, averaging 80,000 bpd lower than levels seen during the same period in 2019, as high retail prices weigh on demand.

In the United States, gasoline products that are derivatives of gasoline — a proxy for demand — was about 8.5 million bpd, or about 7.6 per cent lower than the same time a year ago.

“Refinery production increased throughout June in response to high crack spreads. At the same time, gasoline consumption decreased below 2021 levels beginning in April,” according to the EIA’s short-term energy outlook.

The so-called 321 crack spread , a proxy for refining margins, have fallen to the lowest in more than three months at $37.57 a barrel last week, down from historical highs of nearly $60 in June but still well above seasonal levels.

Meanwhile, gasoline spot prices in New York Harbor have fallen to $3.35 in mid-July from $4.43 per gallon in June, traders said.

Inventories in Europe have also increased reflecting the trend.  Northwest European gasoline barge refining margins were around $10 a barrel on Friday, down from a record $56 in early June.

Citi analysts, however, expect refining margins to strengthen again into the fourth quarter due to a demand boost from potential gas-to-oil switching in Europe and further reduction of Russian diesel exports from European Union sanctions.

SHRINKING DEMAND

• Asian gasoline margins have plunged more than 102% in July
• Northwest European refining margins were around $10 a barrel on Friday, down from a record $56 in early June
• Refiners will be forced to cut gasoline output to safeguard themselves against losses