Asian Refiners Cut Production Amid US Sanctions on Russia

Asian oil refineries are scaling back operations due to the impact of US sanctions on Russia.

Independent Chinese Refiners Bear the Brunt

Independent refiners in Shandong province, China, are particularly affected by the sanctions, which have curtailed the flow of their preferred ESPO crude from the Russian port of Kozmino.

Merchant Processors Feel the Pinch

Merchant processors in Singapore, South Korea, and Taiwan, which rely heavily on fuel exports due to their limited domestic markets, are also considering production cuts amid rising crude and freight costs.

Feedstock Shortage and Higher Costs Drive Cuts

Mia Geng of FGE attributes the run cuts by Chinese teapots to a feedstock shortage and higher costs for alternative crude. The situation is expected to worsen in February.

Multiple Fronts of Impact

The sanctions affect Asian refiners on multiple fronts: the loss of Russian oil, increased demand for alternative grades, and soaring freight rates.

Merchant Refiner Margins Evaporate

Merchant refiners face rising feedstock costs and eroding margins, with some halting spot purchases and considering run cuts or closures.

Gross Refining Margins Plummet

Gross refining margins in Singapore, a regional benchmark, have fallen to negative 65 cents this week, down from $3.75 earlier this month.

Capacity Utilization Declines

Capacity utilization at Chinese teapots has dropped to just above 50%, compared to around 63% a year ago.

Recovery on the Horizon

Some recovery is expected from March due to improved feedstock availability and increased domestic diesel demand.