Asia Refiners Are Squeezed,
[2016-09-30 07:50 GMT]
The Organization of Petroleum Exporting Countries on Sept. 28 agreed to its first production cut in eight years, trying to support oil prices that are still down more than 50 percent from the highs of 2014.
Pricier crude will be passed on to consumers in the form of more expensive gasoline, diesel and jet fuel, and that will dampen demand growth, Goldman Sachs Group Inc. analysts including Nikhil Bhandari wrote in a Sept. 30 research note.
“Good times for Asian buyers are long over since earlier this year and this OPEC decision is exacerbating the bad news,” said Wang Pei, a trading analyst at Unipec, the trading arm of Asia’s largest refiner, China Petroleum & Chemical Corp. “An OPEC deal will be bullish” for Dubai crude prices, “which is bearish for refiners,” she said. Doubts remain about whether OPEC accord will actually be implemented.
OPEC members may reverse discounts they have been offering as they fought to maintain market share in the region that buys the most oil in the world, Goldman’s Bhandari said in the report. Saudi Arabia offered a discount of $1.10 a barrel for its Arab Light crude to Asian buyers in September, compared with a premium of $3.75 in January 2014 before prices started to crash. Iran’s benchmark light oil, which was at a $3.96 premium in January 2014, was at an 85 cent discount this month.
“In the event an OPEC production cut materializes, we think it could be negative for Asian refiners due to the potential reversal of crude discounts they enjoyed as OPEC producers fought for market share,” Bhandari wrote. “Higher oil prices eventually put sustained pressure on product demand while costs to run the refinery escalate.”