Sharp drop in oil prices pushes Japan's JXTG to first annual loss

A sharp drop in oil prices as a result of the spread of the coronavirus pandemic has pushed Japan's JXTG Holdings to a net loss in fiscal 2019-2020 as it is increasingly facing a squeeze in oil products margins, the parent of the largest Japanese refiner said Thursday.

JXTG now expects to report a net loss of Yen 300 billion ($2.7 billion) for the fiscal year ending March 31, down from its November 8 forecast of a Yen 155 billion net profit, marking its first annual loss since its establishment in April 2017 as a result of the merger between JX Holdings and TonenGeneral.

The company attributed its loss to a combination of petroleum inventory evaluation losses and deteriorated margins as a result of the drop in oil prices as well as reduced demand for bonded jet and bunker fuels among other products on slowing economic activities from COVID-19.

The net loss forecast comes against the annual revenue of Yen 10.05 trillion for the fiscal year to March 31, which was also revised lower by 3.4% from the earlier forecast.

In the face of oil price volatility and declining demand for refined products, JXTG Nippon Oil & Energy, the refining arm, has already been responding to the situation by adjusting its crude runs and inventories, a move likely to remain in coming months.

The refiner has shut a combined 275,000 b/d, or 14% of its installed capacity of 1.93 million b/d in Japan, for planned and unplanned shutdowns to date.

Inventory loss

JXTG expects to record a Yen 250 billion loss of petroleum inventory evaluations in the fiscal year as a result of more than halving outright values in benchmark Dubai crude price since January.

Front month cash Dubai, one of Asia's key benchmarks for pricing Middle East crude, has lost more than 45% of its value in March alone, dropping from $50.56/b at the beginning of the month to $27.01/b as of Wednesday, according to S&P Global Platts data.

For 2020 to date, the contract is down almost 60%, from $65.66/b assessed on January 2, Platts records show. Oil prices globally have traced similar losses as the end of the OPEC+ production agreement nears and producers are ensnared in a battle for market share by driving prices lower and lower.

Refiners have not been able to benefit from multi-year lows for crude prices, however, as product margins slide at an even faster pace.

Product spreads for naphtha and gasoline have worsened this month since the coronavirus pandemic took a greater foothold across the globe. The spread for Singapore naphtha against May Dubai futures was assessed at minus $10.29/b Wednesday, and has averaged minus $10.53/b this week, wider than the average of minus $4.87/b in February. Similarly, the Singapore 92 RON gasoline spread to Dubai futures averaged minus $8.08/b this week, compared with February's crack value of $7.47/b, Platts records show.

Wholesale price

JXTG Nippon Oil & Energy has also cut its weekly domestic wholesale base price for ts five major rack petroleum products by Yen 27,000/kiloliter ($38.79/b) as of Wednesday from its first price of the year on January 8, according to Platts calculations based on the data from market sources.

JXTG's latest base price for gasoline stood at Yen 37,000/kiloliter this week, kerosene at Yen 39,500/kiloliter, gasoil at Yen 39,500/kiloliter, low sulfur A-fuel oil at Yen 38,000/kiloliter, and A-fuel oil, a blend of gasoil and fuel oil in a 90:10 ratio, at Yen 37,500/kiloliter, and will be effective until April 1, according to market sources.

JXTG has a domestic market share of around 50% and its prices are closely tracked by two other major refiners in Japan -- Idemitsu Kosan and Cosmo Oil.

JXTG's weekly prices typically track the week-on-week movement in crude oil procurement costs based on the daily average of Platts Dubai and Oman crude benchmarks, market sources said.

The crude oil procurement cost decreased by Yen 27,080/kiloliter on average over March 17-23, compared with the average over December 31-January 6, according to Platts calculations.