Singapore—Transportation fuels -- including gasoline, diesel and jet fuel -- saw their refining margins improve sharply from 2020 levels amid a pick up in mobility, but South Korea's top refiner SK Energy plans to maintain a conservative approach in middle distillate production as the outlook for Asia's fuel demand remains fragile.
The FOB Singapore 92 RON gasoline crack against front-month ICE Brent crude futures averaged $5.25/b to date in 2021, a sharp improvement from 2020 average of crack spread of $1.75/b, S&P Global Platts data showed. Meanwhile, the FOB Singapore jet fuel/kerosene cash differential was assessed at a premium of 25 cents/b to Mean of Platts Singapore jet fuel/kerosene assessments May 17, marking the highest cash differential since Feb. 25, 2020 at MOPS plus 27 cents/b.The improved Asian middle distillate cracks and prices have encouraged several major refiners across Asia to raise their run rates and increase refined product sales overseas. Taiwan's Formosa Petrochemical, for one, recently returned to the regional market to offer gasoline term cargoes for the second-half of 2021, as run rates at its Mailiao complex were lifted to capture the improved refining margins for the motor fuel.
South Korean refiners had initially planned to raise gasoline output and exports in the second quarter, in an effort to capture healthy export margins, while motor fuel demand recovery in external markets outpaced the pickup in domestic consumption.
However, SK Energy said it would continue to limit production of oil products in Q2 and keep run rates low as the recovery in both domestic and Asia's overall consumer and industrial fuel demand has been inconsistent.
"SK Energy would keep crude run rates low in the second quarter as [domestic and regional] oil products demand remains sluggish," a company official said.
On the domestic front, South Korea consumed 76.78 million barrels of oil products in March, marking the highest monthly demand since May 2020, latest data from state-run Korea National Oil Corp. showed, as transportation fuel demand picked up following the launch of nationwide vaccination program in late February.
Still, the monthly demand could easily fall back to the 70 million-72 million barrel range if infection cases shoot higher and health authorities call for another round of movement restriction measures, according to middle distillate marketers at South Korean refiners and analysts at Korea Petroleum Association based in Seoul.
Meanwhile, a number of South Korea's middle distillate export outlets in Asia such as Vietnam, Singapore, Thailand and Indonesia have since mid-April begun to mull the need for new movement restrictions to curb a fresh uptick in community COVID-19 infections.
The near-term gasoline demand outlook in Asia appears to be less positive, with a rise in infection rates and associated movement restriction measures seen across Northeast and Southeast Asia, which could limit upside for gasoline cracks, S&P Global Platts Analytics said in a weekly note.
Reflecting the region's fragile fuel demand and South Korea's lackluster export prospect, Asia's major middle distillate supplier is forecast to produce average of around 386,000 b/d of gasoline in Q2, 6.5% lower than 413,000 b/d produced in Q1 and below the 2020 production average of 397,000 b/d, according to latest data from Platts Analytics.
Refinery operationSK Energy's run rate averaged 67% in Q1, down sharply from the 92% average in the same period a year earlier, the company official said. The refiner produced 48.1 million barrels of oil products over January-March, compared with 71.71 million barrels a year earlier.
The refiner's diesel production tumbled 31.5% on the year to 17.93 million barrels in Q1, while gasoline output fell 16.2% from a year earlier to 11.09 million barrels. Its jet fuel output for the first three months plunged 70.8% year on year to 2.39 million barrels, the official said.
SK Energy runs five CDUs with combined capacity of 840,000 b/d in the Ulsan complex on the country's southeast coast. It shut the 240,000 b/d No. 4 CDU for maintenance in April which will last until later this week.
SK Energy's affiliate SK Incheon Petrochem produced 3.32 million barrels of diesel in Q1, down 1.2% from 3.36 million barrels a year earlier.
It produced 1.37 million barrels of gasoline over January-March, up 3.8% from 1.32 million barrels in the year-ago period.
SK Incheon's run rate averaged 53% in Q1, down from 80% a year earlier.
SK Incheon Petroleum runs two CDUs with 275,000 b/d and a 100,000 b/d condensate splitter at the Incheon complex on the west coast.
