Analysis: Malaysian crude sales under threat as Australian refineries fight to survive

Singapore — Malaysia's crude oil exports to Oceania could be in jeopardy as major Australian buyers of its light sweet crude grades struggle to run their refining business operations due to tepid oil product margins and weak fuel demand caused by the prolonged coronavirus pandemic.

Australian crude oil importers, including Lytton refinery in the state of Queensland, Kwinana refinery in Western Australia and Geelong refinery in Victoria regularly buy light sweet Malaysian grades like Kimanis, Kidurong, Kikeh, Labuan and Tapis Blend.

Australia imported 33 million barrels of crude oil from Malaysia in 2019, placing the Southeast Asian producer as its top refinery feedstock supplier last year, according to data from the country's Department of the Environment and Energy.

However, recent slew of reports that various Australian refiners are considering shutting their operations have raised alarm bells among Southeast Asian sweet crude suppliers.

Australia's light sweet crude imports from Malaysia is expected to tumble to around 22 million barrels for the full year, down 33% from 2019, according to Singapore-based low sulfur crude traders and Australian fuel distributors surveyed by S&P Global Platts.

Ampol, formerly Caltex Australia, announced earlier this month the start of a "comprehensive review" of its Lytton refinery as a prolonged period of poor refining margins and an uncertain outlook threaten the closure of the 109,000 b/d facility.

Ampol typically sources light sweet Kimanis crude from the regional spot market for the Lytton refinery.

The announcement of the review comes after the refiner reported an $82 million loss for the third quarter, taking its year-to-date loss to $141 million.

Another Australian refinery, Viva Energy's 120,000 b/d Geelong refinery, launched a similar review in early September as it grappled with large operating losses and weak demand amid the re-imposition of movement restrictions in the state of Victoria in Q3, Platts reported earlier.

"The company is assessing other options to address operating losses, including the possibility of moving to a full shutdown of the facility," Viva Energy said in a statement on its website in September.

Faltering Australian demand for light sweet Malaysian grades weighed heavily on Kimanis crude price differential in recent trading cycles. Kimanis was assessed at an average premium of 2 cents/b to Platts Dated Brent to-date in Q4, sharply lower than the $1.65/b premium in Q3, Platts data showed.

FUEL SALES OPPORTUNITY

On the bright side, Malaysia could seize the opportunity to boost oil product sales to Australia as the country will be even more reliant on imported gasoline and gasoil when the refiners cease operations, a middle distillate marketing manager at Petronas said.

Malaysia was Australia's second biggest supplier of gasoline in the month of August, latest data from the Department of the Environment and Energy showed.

Australia received 851,000 barrels of the auto fuel from the Southeast Asian supplier in August, up 52% from 561,000 barrels imported in July. Australia received zero gasoline cargoes from Malaysia in the same period a year earlier.

Singapore also managed to boost its gasoline sales to Australia in the same month. Australia took 1.46 million barrels from the Asian petroleum trading hub in August, more than double the 688,000 barrels it received a year ago.