Karachi 24, March, 2022: Some Asian refineries plan to increase output in May to cash in on high prices for gasoil exports to Europe, even as the steepest crude prices for 14 years threaten profit margins, numerous trade sources said.
European diesel supplies have shrunk following the disruption of western sanctions imposed on Russia in response to its invasion of Ukraine, which it describes as a “special operation”.
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Russia is the world’s top exporter of crude and oil products combined, at around 7 million bpd, or 7% of global supply, the International Energy Agency said. Europe relies on Russia for 60% of its diesel imports, Citibank said.
Strong European demand has boosted Asian refiners’ profits for producing gasoil for exports to the West. However, Asian refiners are also paying record premiums for Middle East crude supplies after the disruption of sanctions left buyers with limited options.
Indian state refiners have increased crude runs to boost oil product exports to offset some of the losses they have incurred for selling gasoline and gasoil at lower rates in the domestic market.
Asia’s top fuel exporter Taiwan’s Formosa Petrochemical Corp will also raise output, while South Korean refiners are already maximising their exports.
“In the current environment, exporting fuel is very attractive but we have to first meet Indian demand,” an official at one of the state refiners said on condition of anonymity.
Indian refiners, which buy most of their oil under annual contracts, are geared towards maximising diesel output as the fuel accounts for about two fifths of refined products consumption in the country.
According to Platts Analytics, February global crude distillation unit downtime is expected to average 10.5 million b/d, up 516,000 b/d from January, on both planned work and coronavirus-related issues.
The US is expected to account for most of the CDU outages, with 2.5 million b/d offline in January and 2.85 million b/d offline in February, due in part to extreme cold weather which impacted large USGC refineries. In March, US CDU downtime is expected to reach 4 million b/d.
Much of Russian crude imported into the US goes to the US Atlantic Coast refineries of Monroe Energy and PBF Energy. The year through Feb 10, US imports of Russian crude have averaged just under 900,000 b/d, according to US Customs data, of which about 26,000 b/d of early January barrels went to Chevron’s 269,000 b/d El Segundo, California, refinery.
Kpler data shows the last cargo of CPC Blend headed for the US departed for Wilmington, Delaware, home to PBF’s 171,000 b/d Delaware City refinery, on Feb. 14, well before any sanctions on Russia were imposed.
USAC margins for Urals averaged $16.83/b for the week ended Feb. 25, up from the $12.66/b for the week ended Feb. 18, and surpassing margins for Nigerian and US domestic crudes like Bakken.
However, Chevron spokesperson Kelly Russell said in a Feb. 28 email, “As a matter of company policy, Chevron does not discuss commercial agreements, but as always, will comply with all current and applicable laws and regulations. We are closely monitoring developments in relation to impacts in Europe.”
Urals margins for Northwest Europe refiners averaged $12.32/b for the week ended Feb. 25, Platts Analytics data showed, up from the $9.63/b the week earlier. Kpler data showed only one 39,000-barrel cargo heading into the region, bound for Neste’s Porvoo refinery. Only one Urals cargo was seen fixed for China: a 564,500 barrel vessel into Ningbo on Feb. 21, according to Kpler data. Urals margins for China averaged $8.86/b for the week ended Feb. 25, up from $6.05/b the week earlier, Platts Analytics data showed.
