Disrupted crude flows from the Middle East to Asia due to the de facto closure of the Strait of Hormuz has pushed Asian refining margins to the highest in four years.
The Singapore complex refining margins, a proxy for refining profits across Asia, surged to almost $30 per barrel on Wednesday, according to LSEG data cited by Reuters.
That’s the highest the benchmark Asian margin has been since 2022 as refiners are cutting processing rates and halting fuel exports to cope with the delays in crude deliveries.
Asian refiners, particularly state-held majors heavily dependent on Middle East oil supply, are considering slashing crude run rates by up to 30% amid the war in Iran that is holding up millions of barrels of Middle Eastern crude stuck near the Strait of Hormuz.
The de facto halted shipments via the Strait of Hormuz threaten to delay key cargo deliveries that Asian refiners have contracted in recent weeks.
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As dozens of oil tankers are still stuck in the Persian Gulf without a way through the Strait of Hormuz, some of the big refiners in China and Japan are considering slashing crude processing rates by 20-30%, sources familiar with internal discussions at these refiners told Bloomberg earlier this week.
In addition, China has told energy companies to suspend new fuel export contracts and try to cancel already arranged fuel shipments abroad as global fuel markets tighten amid the Middle Eastern war.
Moreover, Saudi Arabia has shut its 550,000 barrels per day Ras Tanura refinery, the country’s largest, following Iranian drone attacks. Supply of fuels from the Middle East is also at risk, which is pushing diesel and jet fuel margins the most.
Diesel faces the most acute physical pressure in the near term, Kpler analysts say. The limited near-term alternatives makes the diesel supply risk even more acute than the risks for crude oil, jet fuel, and LNG.
By Tsvetana Paraskova for Oilprice.com
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