Oil refiners lose shine as MCO destroys demand

Refiners’ margins are expected to be hit as fuel demand and consumption fall on reduced driving

by NUR HANANI AZMAN/ pic by MUHD AMIN NAHARUL

THE extension of Movement Control Order (MCO) has seen Malaysian oil refiners become a notable casualty, given the sector is already suffering from oil glut and demand destruction.

Refiners’ margins are expected to be hit as fuel demand and consumption fall on reduced driving. Subsequently, the oil companies are likely to experience losses on value of inventory held.

“Refiners store up petrol and when petrol prices fall, they create losses on the inventory. Refinery companies usually gain more margins on uptrend and stable oil or petrol prices.

Maybe after a few months, when things get better and economic activities are back to normal and thus the crude oil price, then the refinery may see some good days,” Areca Capital Sdn Bhd CEO and ED Danny Wong told The Malaysian Reserve.

The Covid-19-induced glut has hit listed refiner stocks such as Hengyuan Refining Co Bhd, which closed 0.3% or one sen lower at RM2.98 last Friday, valuing the company at RM897 million. The stock was priced at RM4 on Feb 18, a month before the MCO was enforced on March 18.

The share price of Petron Malaysia Refining & Marketing Bhd was unchanged at RM3.76 last Friday, valuing the company at RM1.02 billion.

The stock was priced at RM5 a piece on Feb 18. The fall in demand and prices in the energy market has hit the region hard. Singapore’s Sembcorp Industries Ltd’s subsidiary, Sembcorp Cogen Pte Ltd, terminated a gasoil supply and storage agreement with the city state’s cash strapped oil-trading company Hin Leong Trading (Pte) Ltd.

Hin Leong, one of Asia’s top oil traders, sought to delay repayment of billions of dollars of debt by filing a debt moratorium court filing in Singapore last week.

Meanwhile, Thai refiners have also seen the value of their oil inventory plunged by 10 billion baht (RM1.34 million) after the prices of crude oil collapsed amid plummeting demand during the Covid-19 pandemic.

Demand for aviation fuel in Thailand has fallen by 90% as carriers ground their fleets and operations, leaving refineries unable to sell their stored product.

Indonesia’s PT Pertamina has decided to halt some of its refinery operations, as importing oil products is seen as more economical than producing fuel domestically.

Oil storage has become increasingly scarce as a growing supply glut collides with collapsing fuel demand.

As traditional storage tanks filled up, oil has been pushed onto tankers to float off Singapore, the US Gulf Coast and the US West Coast.