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Energy and Resources Asia oil refining margins hit highest level since 2017 on supply cuts

Asia oil refining margins have more than tripled in the past three weeks to hit their highest since September 2017, Refinitiv data showed on Friday, after refiners cut output and tightened fuel supplies.

The complex refining margin for a typical Singapore refinery rebounded to $9.37 a barrel at the close of Asia’s markets on Thursday, up from $2.74 a barrel on June 21.

Refiners’ profits for gasoline, naphtha, diesel, jet fuel and high-sulfur fuel oil, also known as crack spreads, rose this month after several refiners across Asia either reduced output or shut down plants for maintenance.

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Refinery shutdowns in China also propped up the market as state oil majors cut back exports.

The biggest jump in margins came from fuel oil which has soared to a near eight-month high premium of $4.51 a barrel above Dubai crude on Thursday, up more than threefold from a discount of $2.01 a barrel on June 21.

In one of the first signs of the impact of a shift in global ship fuel rules to occur in 2020, high-sulfur fuel oil (HSFO) spot premiums in Asia have hit records in recent weeks as refineries reduced production months ahead of a mandatory switch to lower sulphur marine fuel in the shipping industry.

Traders are also drawing down HSFO stocks in Singapore as they switch supplies in tanks to low-sulfur oil, JBC Energy analysts said, adding that an unexpected surge in bunker fuel demand in Singapore after ship attacks in the Middle East also supported fuel oil margins.

The International Maritime Organization (IMO) will require ships to burn fuel with 0.5 per cent sulphur instead of the current 3.5 per cent from the start of next year.

Gasoline and naphtha, which have been dragging down overall refining margins in the first half of this year, have also rebounded on supply cuts and as steam crackers return from maintenance.

Asia’s gasoline crack spiked by more than 115 per cent to $8.09 a barrel from June 21 while naphtha’s crack jumped 73.3 per cent to $40.43 a tonne.

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Diesel and jet fuel margins were also up on firmer demand from China and the aviation sector as summer demand has kicked in.

The margin for gas oil with a sulphur content of 10 parts per million has risen 12.1 per cent since June 21 to $16.75 a barrel over Dubai crude on Thursday. The cracks for the benchmark gas oil grade are at their highest for this time of year in the last six years, Refinitiv data showed.

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