Thai refiners expect oil product demand to pick up further, refining margins to narrow in 2024

Thai refiners expect domestic oil product demand to pick up further this year amid aviation and tourism recovery, after earnings took a hit in 2023 from lower crack spreads due to weakened global demand, industry and company sources told S&P Global Commodity Insights over March 6-11.

Thaioil -- which owns the largest share of refining output in the country -- said in its annual report released last week that overall consumption of petroleum products is expected to increase by 2.8% this year, with jet fuel consumption climbing 24.2% on the year.

The projection comes as the Tourism Authority of Thailand expects foreign arrivals to reach 35 million this year, up 25% from 2023. This is, however, still short of the 39.9 million tourist arrivals recorded pre-pandemic in 2019, according to the country's Ministry of Tourism and Sports.

Despite a 2.15% increase on the year in oil product sales volume to 20.5 billion liters/year, Thaioil recorded a 9.68% decrease in sales revenue for the year to Baht 492 billion ($13.8 billion) due to "considerable declines in average selling prices," it said in a note for the financial year that ended Dec. 31.

Platts assessed outright FOB Singapore 92 RON gasoline at an average of $94.03/b in 2023, down sharply from the 2022 average of $110.98/b, S&P Global data showed.

This comes as the state-owned PTT subsidiary booked a gross refining margin, excluding stock gain or less, of $8.5/barrel in 2023, down $3.5/barrel compared with the previous year, Thaioil added.

Thaioil's crude oil throughput and other feedstock accounted for 307,000 b/d, or 112%, of its nameplate capacity in 2023. Domestic output in the year grew 4.7% on the year to 914,804 b/d due to higher domestic demand, contributing nearly 30% of Thailand's total output.

Meanwhile, Bangchak's refineries -- which contribute about 15% of the country's refining output in 2023 -- operated at a throughput of 120,100 b/d in 2023, down 2% from 2022.

The company acquired shares in Esso Thailand from ExxonMobil in 2023, making it the largest refiner in the country, as it now operates the 174,000 b/d Sriracha refinery alongside the 120,000 b/d Phra Khanong refinery.

Asia's output of refined products in 2024 is expected to rise at a much slower pace compared with the previous year, with production growth in the first quarter of the year projected at 390,000 b/d year over year, mainly contributed by jet fuel and light ends, according to S&P Global's short-term outlook Feb. 29.

Narrowing margins expected

Thailand's Bangchak expects the refining margin of cracking refineries in Singapore to decline from 2023 this year, due to subdued economic conditions and elevated inflation globally, it said in a management discussion and analysis for FY2023.

The company added that China's oil demand rebound will likely be lower than anticipated due to its real estate crisis, although refining margins may still pick up due to market concerns about the Middle East crisis constraining global oil supply.

State-owned PTT expects Singapore gross refining margins to fall 12% on the year to $5.50-$6.50/barrel, putting pressure on its refinery takings alongside lower utilization rates due to planned maintenances, the company said in an analysts meeting Feb. 21.

Reflecting the tepid Asian margin outlook, Thai refineries are unlikely to pay much attention to oil product exports, but will instead maintain their core focus on serving and meeting domestic demand, according to a feedstock and product inventory management source at IRPC, state-owned PTT's petroleum and petrochemical arm.

Asian crack spreads got off to a mixed start in 2024, with middle distillate fuels underperforming against light-end products.

Platts second-month Singapore gasoil swap crack against Dubai crude swaps averaged $22.63/b to date in Q1, down slightly from the Q4 2023 average of $23.49/b, while the second-month Singapore jet fuel crack swap against Dubai swaps has averaged $20.89/b so far in Q1, compared with the average of $22.67/b in Q4 2023, S&P Global data showed.

On the contrary, Platts FOB Singapore 92 RON gasoline crack against second-month Dubai swaps has averaged $12.91/b so far in Q1, more than double the Q4 2023 average of $6.3/b, S&P Global data showed.

Meanwhile, both companies expect the average Dubai crude oil price to move between $74-$85/b in 2024, with global economic slowdowns and steady increases in output by non-OPEC+ producers putting pressure on the outright Middle Eastern crude benchmark.

Oil demand growth, mainly in Asia, may fall short of the pickup in overseas supply on the back of rising production in countries such as the US and Brazil, S&P Global reported earlier.

"Non-OPEC production growth continues to outstrip OPEC growth despite the higher-than-expected year-on-year increase in OPEC oil production in Q3 and Q4 2024," analysts at S&P Global said.

Platts assessed benchmark front-month Cash Dubai at $82.11/b on March 11, S&P Global data showed.