In days of yore, Asian refiners had always been able to bank on
comfortable, if not cushy margins from cracking crude oil into
middle distillates.
Even in early 2008, Asian refiners were enjoying record high sulfur gasoil crack spreads of more than $40/b against the Dubai crude it can be produced from, riding high from massive demand from China's stockpiling ahead of the Beijing Olympics, India's escalating domestic growth, refinery outages around the world and to fire up construction projects and transportation everywhere.
Even in early 2008, Asian refiners were enjoying record high sulfur gasoil crack spreads of more than $40/b against the Dubai crude it can be produced from, riding high from massive demand from China's stockpiling ahead of the Beijing Olympics, India's escalating domestic growth, refinery outages around the world and to fire up construction projects and transportation everywhere.
Fast forward to September 2009 and the only scene is that of
refiners weeping into their coffee cups each morning as they
read the news about the global recession and lament about poor
cracking margins.
The slide began with the plunge in crude prices which thrashed the entire oil complex downward. Middle distillates arguably bore the brunt of the collapse; the average front month Dubai/high sulfur gasoil crack slid from an average value of just over $26/b for all of 2008 to an average of about $7.60/b across the first eight months of 2009. However, that latter figure was more in keeping with average crack values across the 2003-2004 period.
As such, it may take at least 1-2 years of strong economic recovery to propel the complex upward again.
Stock levels are at an all time high. In the benchmark Singapore hub, stock levels have remained above 14 million barrels for most of the year, while in Japan, stock levels have been above 12 million barrels.
And that traditional lifesaver -- arbitraging excess cargoes out of the region to the West -- has all but disappeared with record high stock levels elsewhere as well.
Indeed, there will be no quarter drawn from outside the Asian region. US middle distillate stocks rose 920,000 barrels during the week ending August 28, according to the latest data from the American Petroleum Institute. At 161.816 million barrels, distillates are 32.40 million barrels higher compared to the same period last year.
With little opportunity for arbitrage and poor demand, it seems that while winter has set in very early in the year for Asian refiners, Christmas still seems a lifetime away. Welcome to the new world order.
The slide began with the plunge in crude prices which thrashed the entire oil complex downward. Middle distillates arguably bore the brunt of the collapse; the average front month Dubai/high sulfur gasoil crack slid from an average value of just over $26/b for all of 2008 to an average of about $7.60/b across the first eight months of 2009. However, that latter figure was more in keeping with average crack values across the 2003-2004 period.
As such, it may take at least 1-2 years of strong economic recovery to propel the complex upward again.
Stock levels are at an all time high. In the benchmark Singapore hub, stock levels have remained above 14 million barrels for most of the year, while in Japan, stock levels have been above 12 million barrels.
And that traditional lifesaver -- arbitraging excess cargoes out of the region to the West -- has all but disappeared with record high stock levels elsewhere as well.
Indeed, there will be no quarter drawn from outside the Asian region. US middle distillate stocks rose 920,000 barrels during the week ending August 28, according to the latest data from the American Petroleum Institute. At 161.816 million barrels, distillates are 32.40 million barrels higher compared to the same period last year.
With little opportunity for arbitrage and poor demand, it seems that while winter has set in very early in the year for Asian refiners, Christmas still seems a lifetime away. Welcome to the new world order.
