Refinery margin tracker: Asian margins soften as Coronavirus sweeps region

New York — Refining margins in Asia are trending lower as coronavirus fears create demand uncertainty, while margins in other regions appear unaffected as planned and unplanned outages cut supply, an analysis from S&P Global Platts showed Monday.

S&P Platts Global Analytics forecasts the coronavirus could drop global oil demand 900,000-2.6 million b/d in February and 650,000-2 million b/d in March as more and more travel restrictions are put in place.

Singapore refining margins slipped further into negative territory for the week ended January 31, with the benchmark Dubai cracking margin averaging minus $1.71/b compared with minus $1.41/b the week earlier, margin data from S&P Global Platts Analytics shows.

Chinese topping margins for Russia's ESPO crude, a favorite among independent Chinese refiners, actually ticked higher, averaging $1.09/b compared with 77 cents/b the week earlier. But in Singapore, ESPO cracking margins slipped to 39 cents/b from the 52 cents/b the week earlier.

Higher cracking margins for Chinese refiners are in part supported by higher exports. China's gasoline exports alone rose by 27.1% year over year to reach just under 140,000 b/d in 2019, China's General Administration of Customs data showed Friday.

However, Chinese coking margins remained mired in negative territory, as travel restrictions put in place to stem the spread of the virus bit deeper into jet and diesel margins.

Platts Analytics' worst-case scenario assumes Chinese aviation demand will drop by 50% in February and March, with its best-case scenario assuming a severe curtailment in China and Asia.

In China, coking margins for Arab Light averaged minus $4.28/b for the week ended January 26, compared with the minus $4.96/b the week earlier. Cracking margins for the same crude over the same time period inched higher to minus $5.92/b from the minus $5.97/b the week earlier.

Margins in other regions have strengthened, due in part to planned refinery work underway taking supply off the market have countered lower demand.

In the oil market hub of Amsterdam-Rotterdam-Antwerp, cracking margins for Bonny Light averaged $2.99/b for the week ended January 31, compared with the $1.75/b the week earlier. About 411,000 b/d of regional crude distillation capacity is offline in February, rising to 688,000 b/d in March, Platts Analytics forecasts.

IMPACT ON US UNKNOWN

The impact of the Coronavirus on demand is not yet known, some US refiners said.

"I think the situation in the Far East is just developing, and it's really too early for us to be able to judge the magnitude of the impact that it's going to have and whether it leads to refineries shutting down or not," said Gary Simmons, Valero's head of commercial operations on Thursday's fourth-quarter results call.

Valero's jet yield is about 8%, putting production at about 200,000-250,000 b/d.

"Some of that is contract demand, which is going to stay, but a lot of it in our Gulf Coast refineries ... we have the ability to put that into diesel if jet demand got soft," he added.

US Gulf Coast coking margins for Mars crude rose for the week ended January 31 to $5.67/b to $5.28/b, due in part to a USGC refinery turnarounds underway at some key plants.

Platts Analytics forecasts that 1.44 million b/d of USGC crude distillation capacity was offline for the week ended January 31, with expectations 1.11 million b/d will be offline the week ended February 7.

MARATHON DIESEL CRACKS SLIGHTLY WEIGHED DOWN BY VIRUS

Gary Heminger, outgoing CEO of Marathon Petroleum, said on Wednesday's Q4 earnings call he sees a bit of a downward movement in diesel cracks on falling coronavirus-related demand, particularly in jet fuel, but noted distillate demand "will certainly pickup in the aftermath" of the health scare.

On the US West Coast, coking margins gained as both planned and unplanned outages cut output, including lower output as Marathon puts the finishing touches on its Los Angeles Refinery Project, where the company is combining operations of two separate refineries.

The USWC coking margin for Napo averaged $19.37/b for the week ended January 31, compared with the $17.61/b for the week earlier.

Platts Analytics calculated 432,000 b/d of USWC crude distillation capacity was offline for the week ended January 31, but expects outages to fall to 338,000 b/d for the week ended February 7.

Marathon will actually benefit from weaker jet fuel prices on the USWC, said David Whikehart, head of light product supply, as the company has a short-position against its contracted US West Coast jet fuel demand and imports jet to cover its contracts.