Asia refining margins soar as sanctions threaten Russian supplies
Asian oil refining profits have rallied to their heftiest in 20 months, boosted by robust diesel performance on a tightening outlook after the United States sanctioned two major Russian suppliers, analysts and trade sources said.
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Singapore's complex refining margin, a proxy for Asia refining profitability, rose to nearly $9 a barrel on Tuesday, the widest since February 2024, based on LSEG data, up from about $2 per barrel in early October.
The strength has mainly been driven by the global diesel market, which has staged an upward swing in recent weeks on robust demand and tighter supply prospects.
Refining cracks for benchmark 10 ppm sulfur gasoil breached $26 a barrel on Tuesday, holding at more than 1-1/2 year highs.
European markets have followed a similar trend, rallying on supply concerns, with benchmark diesel margins up to above $30 a barrel on Monday, their highest since mid-February 2024.
U.S. sanctions Russian oil exporters. Markets were further boosted by U.S. sanctions last week on Russian oil exporters Rosneft and Lukoil.
"The latest sanctions on Russia threaten diesel flows, as Russia exports around 1 million barrels per day of diesel," ING commodities strategists said in a research note. "There is also the risk that Indian refiners reduce run-rates if they stop buying Russian oil. This would lead to lower middle-distillate export volumes from India," ING added.
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Before the latest sanctions, diesel supplies from India had been pivoting to Europe as refineries entered peak maintenance season and production fell.
"The current diesel rally was built up from reduced Russian diesel exports due to Ukrainian drone attacks, seasonal refinery turnaround and limited Chinese clean product export quotas into Q4," June Goh, senior oil market analyst at Sparta Commodities, said.
"Additionally, the Arab Gulf and West Coast India distillate arbitrages are pointing east and firmly shut into Europe. Thus, the diesel tightness faced in Europe will be even more substantial," said Goh.
Market talk of fewer spot cargoes from Asian suppliers, including South Korea, China and Taiwan, for November shipments also supported sentiment in the short run.
Other parts of the barrel. Profit on processing a barrel of gasoline has surged nearly 30% this month to around $13 per barrel, driven by tight supply from unplanned Southeast Asian outages, even as margins narrow in other regions heading into winter, traders said.
"Strong margins should keep refinery runs high, and rising OPEC+ crude supply, especially medium sours, will improve crude slate optimization and boost clean product yields," Energy Aspects said in its monthly outlook for middle distillates.
Meanwhile, naphtha cracks were rangebound this month, and fuel oil margins remained lackluster. Low-sulfur fuel cracks have edged lower, while high-sulfur fuel logged recent gains but were broadly rangebound.
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