Major refineries in China saw refining margins fall into negative territories because of surges in crude costs.
If calculated on the basis of ex-refinery prices of their products, gross margin from refining domestic Daqing crude was about minus Yuan 493/mt (equivalent to minus US$10.13/bbl) early May, versus minus Yuan 289/mt from two weeks ago. Meantime, gross refining margin for the refineries consuming Oman crude, a representative of imported crude, plunged into negative territory for the first time in two years, touching minus Yuan 32/mt (equivalent to minus US$0.65/bbl), down 221/mt, C1's estimation showed.
May settlement prices of Daqing crude swelled nearly 7% compared with the previous month, further close to historic-high level. The rise was basically in parity with Oman crude.
Integrated wholesale prices of products inched up just 1-3% in the period.
However, the refineries are expected to keep running at high rates as Sinopec will continue to encourage gasoline and gasoil production in May, although their refining margins will improve not much under the policy, market sources denoted.
Sinopec's refining sector posted loss of Yuan 570-mil in the first quarter of this year, according to the oil refiner's quarterly report. The loss may deepen as the benchmark crude price is approaching US$130/bbl, and the government may have to subsidize domestic refineries to ensure oil product supply, market sources believed.
According to the Oil Market Management Method promulgated in May 2009, domestic oil product prices would not go further up, or only be raised by a small margin, when crude prices rise above US$130/bbl, and fiscal and tax tools would be used to ensure supplies.
Based on integrated wholesale prices of oil products, the margins for refining Daqing crude was Yuan 81/mt (equivalent to minus US$1.68/bbl), significantly down Yuan 335/mt from two weeks earlier. Meanwhile, those for Oman crude declined Yuan 127/mt to Yuan 616/mt (equivalent to US$12.66/bbl).
To better reflect refining margins of major refineries, C1 uses ex-refinery price of 93-Ron gasoline instead of 90-Ron gasoline as one of parameters from May 2011.
Starting from Apr 21, C1 calculated the refining margins of Oman crude on the basis of integrated oil products wholesale prices according to mark-to-market principle, namely using C1's assessment for the previous day's CFR price of Oman crude as feedstock cost instead of mean price of the grade in the previous month, which could better reflect changes in international crude prices.
