Refinery margin tracker: China seen increasing Forties flows in June despite weak margins

New York — Despite negative margins, China is expected to increase volumes of Forties crude in June as North Sea production comes back online after maintenance and repairs, an analysis by S&P Global Platts showed Monday. However, the widening of the Brent-WTI spread last week could send Chinese buyers after more economic US barrels. Last week, Asian cracking margins for Forties fell deeper into negative territory, averaging minus $3.02/b for the week ended May 31, down from the minus $2.80/b the week earlier, Platts Analytics refining margin data showed. Softer demand in China is likely driving margin weakness, with overall Chinese oil demand down 0.3% or about 40,000 b/d, year to date, according to a Monday Tudor Pickering Holt research note, noting this includes “an especially bearish” 2.4% drop in April. TPH notes that China distillate consumption is down 5.9% year to date while gasoline demand is up 3.6% year over year. However, Chinese refinery runs are expected to increase, according to Platts Analytics forecasts, which forecasts June runs at 12.9 million b/d up from the 12.7 million b/d in May as planned refinery work ebbs, increasing the need for more crude. In May, China was the leading importer of Forties, taking in 4.1 million barrels or about 43% of all the crude exports out of the loading point of Hound Point, UK, according to Platts cFlow. Shipping and trade sources report that up to four VLCCs are fixed for June, compared with the two in May as North Sea production returns to more normal levels after planned and unplanned work on fields and facilities. As Ekofisk maintenance begins to wind down, North Sea loadings of BFOE are set to return to more normal levels in July increasing supply. In total, 50 cargoes of Brent, Forties, Oseberg, Ekofisk and Troll are scheduled to load in July for a total of 30 million barrels, up from the 8.4 million barrels in June. But a proposed strike for midnight Monday by Norwegian oil and gas union members over pay and conditions could cut 440,000 b/d of oil equivalent, including from fields such as Oseberg Ost and possibly Ekofisk. Union members are engaged in mandatory talks with Norwegian Oil & Gas mandated after talks held early in May failed to reach a resolution. And although China is seen eyeing North Sea crude, the widening of the Brent-WTI spread last week is making US crude more attractive to Asian refiners, which could have them eschewing North Sea crude for Permian barrels. The WTI-MEH cracking margin in Singapore rose last week to $2.44/b from $1.08/b the week earlier, as the Brent-WTI spread for the week moved out to averaged $11.20/b, creating better economics for US crudes. Platts Analytics expects US crude exports to be 3.35 million b/d, compared with the 3.3 million b/d the week earlier.

US Atlantic Coast Refining Margin Averages ($/b)
Bakken cracking Bonny Light cracking Arab Light cracking Hibernia cracking
Week ending May 31 6.79 9.97 15.12 5.43
Week ending May 24 7.44 10.31 15.04 6.44
Q2 to date 8.68 9.29 14.93 8.11
Q2-18 9.65 11.56 12.66 8.85
Q1-19 4.45 6.38 8.57 3.73
Q4-18 4.22 26.56 18.25 3.21
US Gulf Coast Refining Margin Averages ($/b)
LLS cracking Mars coking Maya coking WCS coking
Week ending May 31 9.8 6.27 9.49 7.95
Week ending May 24 9.26 5.96 8.97 7.52
Q2 to date 9.62 7.67 8.48 7.73
Q2-18 9.82 9.04 11.25 9.4
Q1-19 8.42 5.19 5.99 5.94
Q4-18 7.07 2.78 6.55 4.92
US Midwest Refining Margin Averages ($/b)
Bakken cracking WTI cracking WTS coking WCS coking
Week ending May 31 22.62 20.62 19.61 20.95
Week ending May 24 23.05 21.71 20.21 21.28
Q2 to date 20.33 18.71 17.9 17.48
Q2-18 15.72 18.37 13.82 15.91
Q1-19 11.61 11.22 11.65 10.04
Q4-18 21.04 31.36 11.98 14.12
US West Coast Refining Margin Averages ($/b)
ANS cracking Mixed Light Swt cracking Escalante coking Oriente coking
Week ending May 31 16.51 19.08 16.21 20.04
Week ending May 24 16.76 20.09 16.81 20.87
Q2 to date 22.88 25.85 21.73 28.22
Q2-18 15.77 20.9 18.32 22.18
Q1-19 13 15.19 11 16.02
Q4-18 12.64 16.24 13.61 16.7
Singapore Refining Margin Averages ($/b)
Arab Heavy cracking Arab Medium cracking Dubai cracking Qatar Land cracking
Week ending May 31 0.41 -2.8 -0.57 1.08
Week ending May 24 0.77 -0.62 0.31 2.1
Q2 to date 3.05 1.37 2.38 4.11
Q2-18 1.35 0.01 0.8 2.63
Q1-19 2.47 0.14 0.76 2.84
Q4-18 2.34 1.43 4.63 3.31
ARA Refining Margin Averages ($/b)
Arab Light cracking Brent cracking Houston light sweet crack Urals cracking
Week ending May 31 3.83 5.88 4.01 5.64
Week ending May 24 5.32 7.09 5.03 6.75
Q2 to date 5.58 6.64 4.74 5.51
Q2-18 5.12 6.69 5.4 6.44
Q1-19 3.15 3.64 3.02 3.72
Q4-18 3.71 4.37 3.82 5.09
Italy Refining Margin Averages ($/b)
Urals cracking Azeri Light cracking CPC Blend cracking Houston light sweet cracking
Week ending May 31 2.91 6.11 3.1 6.46
Week ending May 24 2.98 6.18 3.14 5.46
Q2 to date 3.19 6.1 3.64 4.98
Q2-18 5.96 7.61 5.75 6.32
Q1-19 2.91 5.28 3.46 3.52
Q4-18 3.48 5.43 3.59 3.43
Source: S&P Global Platts; Turner, Mason & Co.