Oil refining margins collapse in Asia, cheaper crude needed: Russell

Oil refining margins collapse in Asia, cheaper crude needed: Russell

(The opinions expressed here are those of the author, a columnist for Reuters.)

LAUNCESTON, Australia - Refining margins in Asia have collapsed in recent weeks, leaving refiners on the precipice of making losses on every barrel of crude oil processed.

The question is how will refiners, crude oil producers and consumers respond to this rapid shift in market dynamics.

Refiners are likely to be tempted to cut processing rates in order to reduce the supply of refined products, thus boosting the price.

Crude oil exporters, such as Saudi Arabia, may reverse recent hikes in their official selling prices (OSPs), which were largely believed by market watchers to be related to the now-vanishing high refinery margins.

Consumers are likely to only increase demand if retail prices retreat significantly, a process that generally takes some time as the more expensive fuel has to work its way through the supply chain first.

The profit margin at a typical Singapore refinery processing Dubai crude dropped to just 83 cents a barrel on Monday, down 97.3% from the record high of $30.49 a barrel reached on June 21.

That peak was driven by several factors including strong demand for diesel and jet fuel as Asian economies recovered from the COVID-19 pandemic, the