SINGAPORE REFINERIES REDUCING RUNS AT A TIME OF WEAK PRODUCT DEMAND

SINGAPORE REFINERIES REDUCING RUNS AT A TIME OF WEAK PRODUCT DEMAND

Singapore oil refiners are reducing operations, hoping to reverse losses suffered in the past two weeks, but are having to contend with weak product demand in the Far East, industry sources said on Wednesday.

The reduced runs in Singapore refineries also mean less crude-oil intake and would be bearish for the crude-oil market, traders said.Esso Singapore Pte Ltd. has decided to reduce runs by about 15 percent at its 220,000 barrel-per-day refinery immediately and for an indefinite period.

Shell Eastern Petroleum Pte. Ltd. said it has scheduled a shutdown of a 100,000 b/d crude-distillation unit for two weeks in September for maintenance. A spokesman said the shutdown had nothing to do with poor

margins.

Esso's unplanned throughput cut of some 30,000 b/d means the company would have to divert crude oil bought earlier for Singapore to affiliates in the region, sell off unwanted crude and defer further purchases, an Asian trader said.

"Esso's decision was forced by economics, and is for an indefinite period till the situation improves," a trade source said. "If margins don't improve, it may continue with the cut."

Primary refining margins, taking into account the cost of crude and the value of spot refined products, turned negative in early August after slipping for most of July.

"Margins fell when crude prices rose, but mainly because product prices have dropped faster," an trader with an oil company said.

Jet fuel and gas oil, which make up most of the refined-product yield, are at their lowest levels since August 1994.

"Most products are doing badly, demand is very bad," a senior oil executive said. "Singapore refiners are having tank-top problems for jet kerosene and gas oil."

The primary refining margin for a cargo of Middle East Dubai crude would be a loss of 30 U.S. cents a barrel, compared with profits of around 60 cents four weeks ago and $2.50 in June.

Refining a cargo of Malaysian Tapis crude would yield a loss of 50 cents compared with a 60-cent profit four weeks ago.

It will take a while to draw down high product stocks, but the sources said they are hoping Esso and Shell's reduced operations will tighten product supplies in the region.

In addition, they said, gas oil from Europe has not been heading for the Far East because of lower prices here, whereas such movements in the past had increased competition for Asian markets and helped depress prices.

"The crude units' shutdown will reduce supplies, but it is difficult to forecast what the impact on margins will be," the Shell spokesman said.

Although oil traders are hopeful that product demand will pick up in the fourth quarter for the Northern Hemisphere winter demand, bearish sentiment prevails.

"With falling crude prices, sentiment has been affected, and product prices could fall faster," another oil-company trader said.

"More North Sea crude is coming out with new production, and OPEC ministers would surely clamour for market share in their November meeting. All this would be bearish," he said.