Why the Worst Refining Margin in History?

May First Week Records -3.3 Dollars
Actual Demand Fails to Keep Up with Rising Crude Oil Prices

[Asia Economy Reporter Hwang Yoon-joo] The refining margin, which determines the performance of oil companies, has fallen to the worst level ever in just one week. Although international oil prices, which plunged into negative territory in mid-April, quickly stabilized in the first week of May, the prices of refined products such as gasoline and diesel failed to follow suit, causing this phenomenon.

According to the oil industry on the 12th, the Singapore complex refining margin in the first week of May recorded '-3.3 dollars' per barrel. This is the lowest weekly figure since records began. The refining margin is the amount left after subtracting the cost of crude oil, transportation, and operating expenses from the prices of refined products such as gasoline and diesel.

The main reason for the worst-ever refining margin is the widening gap between international oil prices and petroleum product prices. Dubai crude, which had plunged sharply since early last month, suddenly jumped 42% in the fifth week. This was due to the global economies restarting after the COVID-19 pandemic and major oil-producing countries cutting crude oil production, restoring expectations for rising oil prices.

On the other hand, petroleum product prices rose only 28-30% during this period. This means that the actual demand-based product prices did not increase significantly. Accordingly, the refining margin in the first week of May was significantly lower than that of the fourth week of April, when petroleum product prices were at their lowest.

In fact, as the COVID-19 pandemic spread worldwide, international petroleum product prices fell to their lowest level on April 22.

Gasoline ($14.61), diesel ($22.89), and jet fuel ($13.02) all remained in the $10 range per barrel. This was due to the contraction of global economic activities caused by 'social distancing.' However, at that time, crude oil prices had plummeted, with West Texas Intermediate (WTI) prices falling to as low as -$37.6 per barrel last month. As a result, the refining margin linked to crude oil prices was around -$0.9, not exceeding -$1.

A representative from the Korea Petroleum Association explained, "The rapid drop in refining margins was because Dubai crude prices rose sharply while product price increases did not keep pace. As major consuming countries such as the U.S. and Europe announced plans to ease economic lockdown measures, investment demand joined the recovery sentiment, causing crude oil prices to surge."

This content was produced with the assistance of AI translation services.