Asia’s petrol profits rebound, but rising crude prices and green cars cap gains

A seasonal splurge has helped lift Asia’s crimped petrol refining profits out of a long slump, but higher crude prices and the rise of energy-efficient cars are set to leave margins stuck at historically weak levels, industry watchers say.

Asia’s petrol margin, or ‘crack’, stood at nearly $9.60 barrels per day (bpd) on May 25, well above the 20-month low of $5.42 a barrel on April 19. Traders say the surge since late April has been triggered by strong demand.

Firms like Indonesia’s Pertamina, Asia’s top petrol importer, have led the charge, buying actively ahead of the Ramadan fasting month, which this year goes from May 17 to June 14. In India, meanwhile, Bharat Petroleum has beefed up imports in recent weeks to meet an uptick in demand. But analysts warn a creeping slowdown in Asia may be in store.

“Looking just at Asia, we see demand growth (for 2018) at 1,57,000 bpd year-on-year (up 2 per cent), down marginally from the 1,60,000 bpd growth we had at the beginning of May,” said Michael Dei-Michei, head of research at consultancy JBC Energy.

This also shows in profits. Seasonally adjusted and despite the recent increases, Singapore’s petrol cracks have spent most of the year at or near five-year lows.

Decreasing demand

Some of the deceleration is down to overall higher crude prices—despite the recent slump they remain 13 per cent above late 2017. This has fed through to the pump, with increases in retail fuel prices from China to India stoking fears of higher inflation and lower economic growth.

Asia’s petrol demand growth has already been slowing for the last three years, Dei-Michei said. Increasing vehicle efficiency and the rise of electric and hybrid vehicles have played their part in the weakness.

JBC now expects world petrol demand in 2018 to grow by 2,60,000 bpd, down by about 35,000 bpd from its projection at the start of May.

The gradual slowdown in Asian demand growth is also visible in the forward price curve, which has flipped into backwardation in May—meaning prices for immediate delivery are higher than those for dispatch further out in the future. This implies a seasonally tight market for now, but an expectation of a weaker market further out.

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