The boost to Asian refiners' profits from the loss of refining capacity in the United States from August's Hurricane Harvey has proved temporary, but the outlook for the rest of the year is still positive.
Asian refiners were among those that scrambled to take advantage of the closure of about a quarter of U.S. processing capacity after Harvey devastated the Gulf of Mexico coast, with profit margins jumping.
A typical Singapore refinery processing Dubai crude saw its profit margin rise to $9.07 a barrel in September, according to Reuters calculations, well above the $7.01 365-day moving average.
The margin has since retreated to $7.19 a barrel in midday trade on Tuesday, as the profits from main products gasoline and gasoil have slipped.
The profit, or crack, from producing a barrel of gasoil in Singapore fell to $12.85 on Oct. 9, down from a peak of $15.82 on Sept. 8, when the global market was short of fuel in Harvey's wake.
For gasoline, the crack <GL92-SIN-CRK> stood at $9.55 a barrel on Oct. 9, down 42 percent from the high of $16.34 on Aug. 31.
These numbers don't paint too rosy a picture for Asia's refiners, with the gasoline crack currently at much the same level where it started the year and gasoil only slightly higher.
A further bearish signal for Asian refiners is the possibility of higher crude oil prices as the Organization of the Petroleum Exporting Countries (OPEC) and its allies continue their efforts to tighten the global crude markets by limiting output.
Leading OPEC producers Saudi Arabia will cut crude allocations for November by 500,000 barrels per day (bpd), the company said in a statement on Monday.
This means the kingdom will ship slightly above 7 million bpd in November, even though demand from refiners was substantially higher.
"Despite very strong demand from international waterborne customers at more than 7.711 million bpd, they were allocated only 7.150 million bpd," the statement said.
Asian refiners may end up having to pay more to buy cargoes on the spot market, especially for heavier grades typical to Middle East producers and sought-after by refiners using complex units designed to process this type of crude.
But balanced against the chance of higher crude prices and the end to Harvey's temporary boost are bullish factors that should limit the downside for Asian refinery margins.
CHINA THE X-FACTOR
The peak winter demand season is coming, which usually boosts consumption of middle distillates such as heating oil.
Several refineries across Asia are also scheduling maintenance during October and November, which should tighten supply somewhat in the lead up to winter.
But perhaps the biggest potential upside for Asian refiners is the prospect of sharply lower product exports from China, which has emerged in recent years as a major supplier of gasoline and middle distillates such as diesel and jet fuel.
Refiners in China are required to have quotas in order to export surplus products and the authorities in Beijing have lowered the amount it will allow to be exported this year.
The quota awards for 2017 total 37.4 million tonnes of oil product exports
, down some 19 percent from last year, according to a Ministry of Commerce document seen by Reuters.
Given that total product exports from China for the first eight months of the year were 32.8 million tonnes, this implies that only 4.6 million tonnes can be shipped in the last four months of the year.
That would represent a dramatic slowdown from the monthly rate of around 4.1 million tonnes in the January-August period.
Even if product exports don't fall by as much as the quota awards suggest they should, it's still likely that China won't be exporting as much refined fuel in the last quarter of 2017.
China may export 1.0-1.2 million tonnes of gasoil in October, down from the year-to-date average of 1.3-1.4 million, according to Thomson Reuters
Oil Research and Forecasts, which monitors shipments of crude and products.
If Chinese product exports are constrained by a lack of quotas, this will boost the fortunes of the rest of Asia's refiners that supply export markets.
By Clyde Russell