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Oil kept falling in Asia — after losing almost 6 percent last week — as the outlook for global demand remained in question and Asian fuel markets flashed warning signs on shrinking refining margins.
West Texas Intermediate fell toward US$77 a barrel after dropping the most since the banking crisis in March last week. Diesel and gasoline markets in Asia are slumping, leading some refiners to consider run cuts. Still, China’s Golden Week holiday that starts this weekend could spur increased jet fuel consumption as travellers return to the skies.
“It’s unlikely that crude can bounce meaningfully absent crack expansion,” RBC Capital Markets LLC analysts including Michael Tran and Helima Croft said in a note, referring to the margins refiners make from processing crude. Even so, there are signs margins could soon halt their declines as China reduces petroleum-product exports and if Asian refineries cut run rates, they said.
Crude has wiped out nearly all of the gains seen after the Organisation of Petroleum Exporting Countries and its allies blind-sided markets at the start of the month with plans for a supply reduction. Russian refineries, meanwhile, have slightly reduced oil-processing rates for this month due to maintenance season and output cuts pledged earlier.
The magnitude of the pullback in Asian refining margins took analysts at Citigroup Inc. by surprise, the bank said in a note. While the collapse was partly attributed to ramp up of new Middle Eastern refineries, all eyes are now on the strength of China’s fuel exports and whether the nation’s air travel rebounds strongly, Citi said.
Widely-watched timespreads are also signalling less bullishness on oil. The three-month spread for global benchmark Brent was 93 cents per barrel in backwardation, — Bloomberg.
Online Reporter