Rising U.S.-Iran tensions cloud Asian refiners' August run-rate plans

Huo Xing Finance, citing Reuters on July 25, reported that renewed military friction between the United States and Iran is putting global refining's fragile recovery at risk, with Asian refiners feeling the impact first. Refiners in Asia had been expected to lead a rebound in fuel output this quarter, but operations are now at risk of stalling as shipments through the Strait of Hormuz face fresh disruption. Separately, Yemen's Houthi forces have threatened to obstruct Saudi crude exports via the Red Sea. Energy Aspects estimates that more than 3 million barrels per day of Saudi crude normally headed to Asia through the Bab el-Mandeb Strait could be forced onto longer routes. This week, three Saudi tankers initially destined for China and India changed course toward the Suez Canal. The detours are delaying Middle Eastern crude deliveries to Asia just as many refiners have already lined up August feedstock. Refineries in the U.S. and Europe are running close to full capacity, leaving limited room to increase output. Lin Kechang, president of Formosa Plastics Corporation (FPCC), said the company planned to lift its utilization rate to 480,000 barrels per day in August, close to 90% of capacity, and had secured crude for the month. He added that the renewed Middle East conflict has introduced uncertainty over delivery and arrival times for some cargoes. A senior executive in China's refining sector, speaking on condition of anonymity, said cargoes loading in July and August are expected to arrive late, complicating plans to boost production. Supply risks are also rising from Russia. Refining facilities there continue to face Ukrainian drone attacks, contributing to domestic fuel tightness and prompting Moscow to curb diesel exports in an effort to restrain surging local prices. With these pressures converging, refining margins have jumped. Margins in the U.S. and Europe have reached record highs, while Asian margins have climbed to a two-month peak. Neil Crosby of Sparta Commodities said global refining capacity is not sufficient to absorb both a shutdown of the Strait of Hormuz and a Russian export ban at the same time, meaning prices would need to rise to curb end-user demand. For diesel and jet fuel, Asian refining margins have surged above $65 per barrel, versus a little over $20 per barrel before the conflict.