Korean Oil Refiners Given Some Breathing Space
The average utilization rate of U.S. oil refineries fell to 85.9 percent, the lowest level in 15 months, easing competition among oil refiners around the world, analysts say. Singapore’s refining margins, an important benchmark of profitability for refining companies, also rebounded to the US$2 range per barrel, providing some breathing room to Korean oil refiners.
The utilization rate of U.S. oil refiners fell by 4.8 percentage points from the previous week to 85.9 percent in the second week of February, said the U.S. Energy Information Administration (EIA) on Feb. 20. It was a 15-month low since 84.5 percent recorded in the second week of October 2017.
U.S. oil refiners' utilization rate stayed in the 90 percent range over the past three months after touching 89.4 percent in the fourth week of October of 2018. The high rate deepened the global supply glut. In particular, gasoline prices dropped significantly over the several past months as the U.S. West Texas Intermediate (WTI) and shale oil are mostly light oil, which is advantageous to production of gasoline and naphtha. The price of gasoline, which was at US$92 in early October of last year, dropped to US$52 at the beginning of this year, while that of Dubai Crude fell from US$83 to US$52 during the same period. This indicated that the price of gasoline fell more steeply than that of Dubai Crude.
The four months since October resulted in weak demand as this period is a low season as cold weather cut down on vehicle use. This weak demand played a big role in dragging down the price of gasoline as well. Singapore’s refining margins, a major indicator of oil refineries’ profitability, also slid sharply due to the aftermaths of oversupply, arriving at US$1.7 per barrel in the fourth week of January of 2019, the lowest level in 10 years. Despite the drop in the gasoline price, gasoline inventories in the United States rose to 258.3 million barrels, the highest level in the one year period, pointing to a need to adjust supply by lowering the operation rate of oil refineries.
The adjustment of the utilization rate of U.S. oil refineries is good news to Korean oil refiners that have operated oil refining facilities despite loss over the several past months.
Singapore’s refining margins climbed to US$2.6 in the second week of February, prompting some analysts to say that the refining margin has bottomed out.
If this trend holds, Singapore refining margins are expected to go up steadily and surpass the breakeven point (BEP) between US$4 and US$5 within a few months. "Korean oil refineries have coped with the global oversupply by lowering their utilization rates by two to three percentage points since the end of last year," a refinery official said. “It is too early for Korean oil refiners to be happy as they are selling products below cost.”