Asian oil refineries' margins have dropped to their lowest level in nearly five months. Fears the omicron coronavirus variant could deal another blow to the recovery in oil demand.
Many governments imposed travel restrictions on travelers from southern Africa over the weekend to limit the spread of omicron. The virus was first discovered in South Africa. Scientists are studying whether it causes more serious illnesses than existing variants.
The margins of refineries in Asia and Europe had already suffered a slump in the past few weeks as many European countries reintroduced coronavirus restrictions to contain the rising COVID-19 cases.
The double blow risks that the global economic recovery and with it the demand for oil derail. The International Energy Agency estimates that demand should increase by 5.5 million barrels per day (bpd) to 96.3 million barrels per day in 2021.
Howie Lee, an economist at OCBC Bank in Singapore, said, "It will take us at least two weeks to understand what effect this new variant will have on oil demand."
Concerns about the new variant drove oil prices down in thin trade on Friday after the US holiday of Thanksgiving.
Oil prices slumped more than 10% on Friday - their biggest daily decline since April 2020 - but had already made up some of those losses on Monday and rose by more than 3% this morning. Analysts said Friday's sell-off was excessive.
Singapore's complex margins, a barometer of the profitability of Asian refineries, stood at $ 2.15 a barrel on Friday, its lowest level since June 30, data from the news service Refinitiv shows.
A month ago, margins peaked at $ 8.45 a barrel, the highest since September 2019.
"We have been seeing drastic drops in refining margins in the past few days due to concerns about the fast-spreading variant of the Omicron coronavirus," said an official at a large South Korean refinery, citing the growing number of countries that have consequently placed travel restrictions on the new variant.
"From a refinery perspective, we are facing a double blow - falling oil prices and refining margins that are likely to reduce our profitability."
In China, tight border controls could keep Omikron away from the world's largest oil importer, while falling prices could benefit Chinese refiners and consumers, an analyst for a Beijing-based consultancy said.
"This is bad news for the world, but good news for China, as oil prices have fallen significantly," said a China-based analyst, who also refused to be named due to company policy.
Source
Hansa Terminhandel GmbH
