Two S'pore oil refiners deepen production cuts

Two S'pore oil refiners deepen production cuts

SINGAPORE (Reuters): Two Singapore oil refiners have cut production further amid increasing price pressures in Asia, where excess supplies dominate.

Industry sources said the refiners are adopting an aggressive stance in an effort to boost profit margins.

This week Shell and Esso have announced deeper run cuts at their Singapore refineries.

Meanwhile, the island's other two refiners, SRC and Mobil, have said they are ramping production to near maximum.

But industry sources said this was being done for specific operational reasons, rather than in response to an expectations that market conditions are improving.

Singapore, Asia's swing refining center with more than 80- percent of its 1.2 million barrel-per-day (bpd) output exported, is the region's bellwether for the state of the industry.

The refineries have maintained production cuts for several months in response to weaker Asian demand, plus ample global supplies.

But sources said the production cuts mask Singapore's ability to exploit the volatile market to its advantage by turning on the taps within days when product prices rise and cutting back when prices dip, they said.

"Product prices are quite volatile. Refiners want to catch a crest. You will see these kind of cuts and increases of output from time to time," a refining source at one oil major said.

In the past two months, refining margin from processing crude at the basic stage have fluctuated from a loss more than $1.40 per barrel to a slim profit of 50 cents, refinery sources said.

Primary margins have now fallen to a loss of between 20 to 60 cents, depending on the type of crude processed.

As a result of the increasing losses, at a time when the peak winter demand period draws to an end, two refiners have deepened production cuts to ease the pain.

On Monday, Shell Singapore, the country's largest refiner, said output in February will be cut by 15 percent to 50,000 tons per day (tpd), or 370,000 barrel-per-day (bpd), from a near seven percent reduction in January.

"Our run levels are currently around 50,000-tpd and...these will be subject to prevailing market conditions," a Shell spokeswoman said on Monday.

The second refiner, Esso Singapore extended a 15-20 percent cut into February from late January at its 230,000-bpd refinery.

But Singapore's two other refiners are raising production to full capacity in February after reducing output in January.

Mobil Oil Singapore cut runs by 20 percent for a week in January -- against an original target of a five percent cut -- following a small fire.

Production is now close to the 300,000 bpd capacity, to ensure adequate supplies for its integrated downstream petrochemical and lubricants plant in Singapore.

The fourth, Singapore Refining Co (SRC), jointly owned by Singapore Petroleum Co, British Petroleum and Caltex has also raised output to full capacity in February after a near nine percent cut in January.