Asian refiners are set to see steep drops in their refining throughput as the region's crude oil imports touch a 10-year low, according to a Reuters report, citing various analysts and refining sources.
According to the report, the military conflict in Iran has forced refiners to process lighter grades of fuel, while cutting back on diesel and jet fuel output by as much as 1 million barrels per day, significantly tightening the supply for these crucial markets.
Asia's crude oil imports are on track to fall by 22% year over year in April, to 20.4 million barrels per day, the lowest since 2016, according to Reuters, citing Kpler data.
This comes despite countries in the region actively scooping up sanctioned Russian and Iranian barrels that have been stuck at sea.
Energy Aspects, a consulting firm, expects Asian crude processing to drop to 28.4 million b/d in April and 28.7 million b/d in May, compared to 30.4 million b/d in March.
The steepest cuts will be seen in April, as alternative supplies will start arriving from the coming week, Amir Abu Hassan, senior oil analyst at FGE NexantECA told Reuters.
China has already curbed fuel exports to shore up its domestic supplies, leading to a drop in its refinery throughput, at 13.4 million b/d in mid-April, compared to 15.4 million b/d in February, a week before the conflict began, according to research firm Horizon Insight.
The firm also noted that these cuts have been mainly at China's state-owned refineries, where the yield of transportation fuels has increased at the expense of naphtha for petrochemicals.
South Korea and Japan are expected to see their utilization rates drop to 65% in late April and early May, from 70% to 80%, while Singapore has dropped below 50%, from an average of 70%, FGE's Hassan told Reuters.
Meanwhile, Indian crude runs have fallen by 13% since February, to 5 million b/d, according to Reuters, citing Nithin Prakash, an analyst at Rystad Energy.
Of the roughly 12 million barrels of crude that are unable to reach Asia due to the closure of the Strait of Hormuz, 8 million was medium density and high sulphur content, used for maximizing diesel output, Vortexa shared insights with Reuters.
Refiners have since opted for lighter West Texas Intermediate and medium-sour Mars grades from the US, along with similar supplies from Kazakhstan and West Africa, which are typically used for more gasoline and naphtha output. As a result, these regions are staring at a significant loss of middle distillates, such as diesel and jet fuel.
(Market Chatter news is derived from conversations with market professionals globally. This information is believed to be from reliable sources but may include rumor and speculation. Accuracy is not guaranteed.)