Refineries in India, South Korea, Japan, and Thailand are expected to follow their Chinese peers in boosting output in June as easing in coronavirus containment measures increases the demand for oil products, industry executives said. An energy consultancy estimated operating rates of Asian refiners, which have a combined capacity of 5 million bpd, to average 75.5% in Q3 and 82.2% Q4, increasing from Q2's average of 72.4%.
According to a source with state-owned Indian Oil Corp (IOCL), the company expects to increase operating rates to 85% in June, up from 39% and 80% in April and May, respectively. Hopes for a recovery in refined product demand support shares in some Asian refiners. Shares in Taiwan's Formosa Petrochemical Corp increased by almost 10% since early February, while shares in India's Reliance rose 14% over the same period.
Despite hopes for improving demand, refiners are concerned about weak margins that are bound to happen if demand recovery cannot keep up with the increase in oil prices. OPEC+ last week agreed to extend record supply reduction until the end of July, which boosted oil prices but at the same time, squeezed refiner's margins.
Weak margins capped refiners' incentive to boost their output. If refining production stays low, supply can tighten further and put upward pressure on product prices. Some refiners are optimistic that margins will improve, but they remain uncertain on how much they will improve.
