Pacific Basin Products Market Faces Pinch

Pacific Basin product markets are fixing to tighten in the coming months due to distortions affecting this crucial global demand hub. In parts of Asia, refiners are considering economic run cuts as margins continue to gyrate. Meanwhile, Chinese demand is rising and could absorb virtually all incremental throughput capacity there, limiting growth in exports or even eating into current flows. The ongoing fallout from embargoes and price caps on Russian petroleum is also contributing, making shipping to the US West Coast much more expensive. Moreover, as Western pressure on Russia ramps up, the flood of Russian products to Asia could dwindle, eating into movements out of the region as refiners look to meet demand in their own backyard. US refiners recently flagged potential run cuts in the Asia-Pacific, echoing fears expressed throughout the market in recent weeks. Lower utilization is not a sure thing — Energy Intelligence’s downstream model shows crack spreads in Singapore remain in the black, but they are not as strong as they were this time last year and lag well behind US levels. Market players in the region have expressed some skepticism that cuts are in fact necessary or will take place. And the proposed cuts are small, with South Korea mulling 100,000 barrels per day and Taiwan another 30,000 b/d. But should they materialize, they would come on top of maintenance that is expected to lighten only come July, further constraining products supply in the Pacific Basin. Demand growth in China is also firming, with Energy Intelligence upping its forecast for annual growth to 890,000 b/d from its April forecast of 750,000 b/d.