Asian refiner profits hammered by free-fall in fuel oil margins

Simple refiners processing heavy crudes will face headwinds as a result of the collapse of HSFO margins. (AFP)
Updated 23 August 2019
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Asian refiner profits hammered by free-fall in fuel oil margins

  • The slump in the overall Singapore refining margins marks a sharp reversal from the near two-year highs
  • The new regulations limit the sulfur content of fuels burned in ships to 0.5%, from 3.5% currently

SINGAPORE: Asian refining margins have tumbled more than 50% since mid-July on anticipation of plummeting demand for high sulfur fuel oil (HSFO) ahead of a shift to cleaner marine fuels next year.
Complex refining margins for a typical Singapore refinery, an Asian benchmark, had dropped to $4.31 a barrel by the close of markets on Thursday, down from $7.39 at the start of August and a near two-year high of $9.37 on July 11.
“Refining margins have been weighed down by bearish HSFO cracks over the past two weeks, with rampant sell-off and de-stocking of HSFO ahead of IMO 2020,” said Serena Huang, senior market analyst at oil analytics firm Vortexa.
Margins for HSFO, an industrial fuel primarily used in ship engines and power generators, have collapsed this month as the global shipping industry prepares for new International Maritime Organization (IMO) rules that start from January 2020.
The new regulations limit the sulfur content of fuels burned in ships to 0.5%, from 3.5% currently.
The slump in the overall Singapore refining margins marks a sharp reversal from the near two-year highs that were scaled in mid-July amid tightening fuel supplies brought on by widespread seasonal refinery maintenance.
But now output of gasoline, diesel and other fuels is surging as the maintenance turnaround season wraps up and new refineries in China, India and Malaysia crank up, hurting the processing margins, analysts said.
“Sluggish demand, alongside rampant refining capacity additions, have fueled rampant exports by (Chinese) refiners, and in turn dragged down prices and margins,” said Peter Lee, senior oil & gas analyst at Fitch Solutions.
On the demand side, a protracted trade war between the world’s two largest economies, the United States and China, is denting global economic growth and the outlook for the consumption of transport fuels.
“The overall very negative macro context of slowing growth across Europe and Asia, and even some disturbing signs in the US ... are a major factor,” said Tilak Doshi, managing consultant for Muse, Stancil & Co. in Asia.
Looking ahead, refining margins are expected to receive a boost eventually from the new IMO rules, which will force a switch from dirty fuels to cleaner, more expensive ones like low-sulfur fuel oil (LSFO) or marine gasoil.
“An expected increase in marine gasoil and LSFO bunker fuel demand for IMO 2020 should ... support refining margins,” said Vortexa’s Huang.
Ship operators are expected to begin burning the cleaner fuels in the last quarter of 2019, boosting demand for the more expensive fuels ahead of the IMO’s Jan. 1, 2020, deadline.
Simple refiners processing heavy crudes will face headwinds as a result of the collapse of HSFO margins, while complex refiners capable of producing lighter, low-sulfur fuels will see a boost in margins as the fourth quarter approaches, said Sri Paravaikkarasu, director at Singapore-based consultancy FGE.
Still, continued increases in refined fuel output from markets such as China and India might limit overall upside potential for the margins, analysts said.


Saudi market regulator in talks with Aramco on IPO rules

Updated 18 September 2019

Saudi market regulator in talks with Aramco on IPO rules

  • Kingdom’s stock market regulator typically requires firms offer at least 20% to 30% of their shares when floating
  • Aramco’s primary listing will be on the Saudi stock exchange (Tadawul) in Riyadh

RIYADH: Saudi Arabia’s Capital Market Authority (CMA) is in talks with Saudi Aramco and its advisers about the regulatory requirements for listing on the domestic stock exchange, its chairman Mohammed bin Abdullah Elkuwaiz told Reuters.
“We continue to have discussions with the company and its advisers on both their readiness, as well as our regulatory requirements for the market,” Kuwaiz said on Wednesday.
Asked whether there will be any waivers or exemptions for the company’s listing, Kuwaiz told Reuters in an interview that the CMA is “still having those discussions.”
The Kingdom’s stock market regulator typically requires firms offer at least 20% to 30% of their shares when floating.
Aramco, whose chairman Yassir Al-Rumayyan said this week that the IPO would be ready within the next year and preparations were continuing despite Saturday’s attacks on its facilities, is yet to file its prospectus with the Saudi regulator.
“We receive waivers or exemption requests where needed and we review them on a case by case basis,” Kuwaiz said, in reference to those discussions.
Aramco’s primary listing will be on the Saudi stock exchange (Tadawul) in Riyadh, but the government is still considering a secondary listing overseas, Saudi finance minister, Mohammed Al-Jadaan told Reuters in an interview on Wednesday.