Japan Refineries May See Margin Recovery

Margins hit six-month low in July; return to profit after heavy losses.

Oil refining margins at Japanese refiners are likely to rise from a six-month low in July, as the decline in oil prices is expected to slow amid a seasonal recovery in demand for products, industry sources and executives said.
 

The nearly $10 dive in global oil prices last month sent  pot product prices sharply lower while costs for refiners were little changed, squeezing margins. But the drop should prove short-lived to help them continue a recovery from heavy annual losses in the last financial year.

Gasoline demand since late July has been firm compared with a year earlier as the weather turns hotter, industry sources said. Average margins in April-June quarter, when oil prices rose, were the highest since the same period in 2014, helping refiners return to profit after heavy losses from inventory charges as crude prices slumped.  
 

"We think (margins) are likely to improve in August and September from a bottom in July," Idemitsu Kosan (IDKOY)'s Executive Officer Toshiaki Sagishima told reporters at an earnings conference on Tuesday. He said despite the projected increase, average margins in the current quarter are likely to fall short of the previous period.
 

Cosmo Oil Co expects margins to stay little changed this month from July's level, but expects them to rise by about 4 yen per litre in September to similar levels between April and June, Senior Executive Officer Kenichi Taki told reporters. Average margins in July fell by more than a third to the lowest since January, according to a research by Mitsubishi UFJ Morgan Stanley Securities analyst Reiji Ogino.

Still, Brent oil prices fell to below $50 a barrel this week for the first time since January, potentially putting a question mark over any recovery in margins, Ogino said. But if the prices start to pick up, "we may see a similar situation to February," he said, when a rise in crude prices prompted a surge in demand in products, with margins jumping more than six-fold from January.
 

JX Holdings on Monday cut crude refining for August from an initial plan citing bulging inventories and other refiners may follow suit, industry sources said. The following table lays out the average refining margins of four oil products including gasoline, kerosene, gas oil and A-type fuel oil, according to research by Mitsubishi UFJ Morgan Stanley Securities. Units are in yen per litre.
    
  Year       Month    Average margin
  2014         Apr              11.8
  2014         May              12.8
  2014         Jun              14.7
  2014         Jul              15.1
  2014         Aug              13.3
  2014         Sep              11.9
  2014         Oct               7.8
  2014         Nov               9.8
  2014         Dec               4.5
  2015         Jan               2.6
  2015         Feb              16.2
  2015         Mar              15.5
  2015         Apr              13.8
  2015         May              15.3
  2015         Jun              13.2
  2015         Jul               8.4

Reporting by Osamu Tsukimori