The Singapore gross refining margin (GRM) has averaged at about $3 a barrel for the March quarter so far. In the year-ago March quarter, GRM had averaged $7 a barrel. The outlook for refining margins remains weak.
There are meaningful capacity additions on the way, just at a time when demand is expected to be relatively muted.
Kotak Institutional Equities estimates a sizeable 2.7 million barrels a day of global refining capacity addition during 2019. This, according to the broker, is the highest in both absolute and percentage terms since the late 1970s. China is expected to add most of 2019’s estimated incremental capacity.
On the other hand, the International Energy Agency forecasts 0.9 million barrels a day of demand growth for refined products in 2019.
This unfavourable demand-supply gap, along with the expected global slowdown, would keep refining margins muted.
Sure, there could be some seasonal increase in margins, but that is unlikely to move average annual margins up dramatically. The only relief will be if the pace of capacity additions turns out to be slower than expected.