Refining margins set to rise post-Harvey
PETALING JAYA: Oil refining margins are expected to rise, at least temporarily, as supply is affected in the aftermath of Hurricane Harvey in the United States.
Petrochemical product prices may also increase as the number of confirmed outages at ethylene production units in the areas impacted by the hurricane continue to rise.
CIMB Research South Korea sees the impact of the tropical storm, which continues to affect areas across Texas and neighbouring Louisiana in the US, as a “temporary boon” for Asian refiners and petrochemical makers.
“We believe the most likely impact would be higher product prices, possibly for an extended period of time, especially for petrochemicals.
“We believe this would be positive for Asian refining margins and petrochemical spreads in the near term,” the research house said in a report.
Besides state-owned Petroliam Nasional Bhd, which owns three oil refineries in Malaysia, Hengyuan Refining Co Bhd and Petron Malaysia Refining & Marketing Bhd, both listed on Bursa Malaysia, also operate refineries in the country.
Listed petrochemical firms include Lotte Chemical Titan Holding Bhd and Petronas Chemicals Group Bhd.
Latest data from IHS Markit states that the condition of the eight shuttered refineries in the Houston area in the US, which represent 15% or 2.7 million barrels per day of the country’s distillation capacity, remains unknown.
The amount of confirmed outages at ethylene production units have also increased, pushing the percentage of total production offline to 54% and total US ethylene consumption capacity to 35%. The research house cautions that more ethylene capacity could go offline as the storm moves towards the border of Texas and Louisiana.
“Most units are expected to restart production as soon as the storm passes.
“However, given the complexity of steam crackers, challenges with obtaining raw materials, logistical and supply chain bottlenecks, it may take weeks for the overall ethylene market to return to pre-hurricane production levels,” it said.
Nomura Global Markets Research noted that gasoline margins had been rising on low inventory and demand increases even before Hurricane Harvey.
“We believe the petroleum market is fundamentally headed towards tighter supply, with global crude distillate unit expansions likely to be lighter than historically,” it said.
It ,however, noted that chemical price reactions to production disruption (shutdown or lower run-rates) of US ethylene and derivative capacity have varied.
“We generally see this as an upside catalyst for petrochemical products across the board, but price reactions appear to be varying depending on the products,” it said.
Price reactions appear tepid relative to petroleum products, as only products with a tight supply were seeing prices rally, such as styrenic products and chlor-alkali, it added.