Asian refining margins to remain buoyant in 2022

KUALA LUMPUR: Asian refining margins will remain buoyant in 2022 as easing movement restrictions boosts demand for transportation fuels, while uptake for Asian fuels from Europe has increased due to international sanctions on Russia, according to Moody’s Investors Service (Moody’s).

It noted that at the same time, supply has fallen due to significant refinery closures last year, coupled with decreased fuel exports from China.

Moody’s analyst, Hui Ting Sim said strong demand for transportation fuels amid a supply shortfall would drive refining margins even as a recent surge in crude prices bolsters feedstock costs.

“Refiners’ earnings will increase this year due to buoyant refining margins and inventory gains from higher oil prices.

“Still, earnings growth will be curbed by higher utility costs, freight costs and premiums to crude oil,” she added.

The credit ratings agency said international sanctions on Russia have limited effect on rated Asian refiners’ operations because they source most of their crude oil from Middle Eastern crude producers via long-term offtake agreements.

Although refineries in China are more reliant on Russian crude, state-owned companies will be able to cope, it noted.

Meanwhile, it expects earnings or cash flows of refining and marketing companies in India and Indonesia to decline this year due to price controls, as they face challenges in fully passing feedstock costs to consumers.

“Nevertheless, the deterioration in the credit metrics of the stateowned refining and marketing companies in those countries could be accommodated in their current credit profiles,” said

Moody’s.

As for Singapore, it said the republic’s refining margins averaged around US$4 per barrel in the past 12 months, and expects the margins to remain buoyant at US$4-US$6 per barrel over the medium term.

The credit ratings agency also expects working capital outflows of refiners to rise in 2022 due to higher crude prices.

“Hence, cash-flow generation at Asian refiners will be constrained despite higher crude prices lifting their earnings due to inventory gains this year.