Asian Refiners Facing Major Pressure on Profits

A 25 percent slide in crude prices since June should mean a windfall for Asian refiners, but instead they are facing a major drag on profits.  Although benchmark Brent and West Texas Intermediate crudes are just off multi-year lows, many refiners have previously agreed to pay higher prices for deliveries through to the end of this year and can not pass those costs on to fuel buyers.

Forecasts that crude prices will remain weaker-than-expected into next year have also raised the specter of big write-downs on crude and product inventories on year-end earnings reports.  “As (the falls were) unexpected, they are causing earnings shocks,” said Andrew Yoon, a senior analyst at Daishin Securities, noting the knock-on impact that cuts in oil inventory values would have on end-of-year results.

Brent dropped to less than $83 a barrel on Oct. 16, its lowest in almost four years after falling from this year’s high of $115.71 in mid-June. The front-month contract has recovered some lost ground and has held mostly above $85 since then, but it is not clear its four-month downtrend is finished.


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