Australian fuel market update - 24 July

We are continuing the run of positive news on fuel prices. While over the last three weeks oil prices have been reasonably steady, fluctuating around the US$100-105 mark for Dated Brent, we have seen significant downward movements in refining margins. Refining margins were historically only a small contributor to fuel prices. However, in recent months they have surged to contribute more than a third of the international wholesale price at their peak.

On average across all refined petroleum products, refining margins have now returned to levels just within the ‘normal’ range by historical standards. This has been led by the reduction in motor Gasoline (petrol) refining margins. While the refining margins for Jet Fuel and Diesel have also come down materially, by approximately 45% since their June peaks, they remain elevated by historical standards (see figure 1).

Figure 1: Refining margins for different petroleum products since Jan 2021: Red is Diesel; green is Jet Fuel; orange is Gasoline; white is ‘Complex products’; blue is Brent crude oil (source: Refinitiv, via Reuters).

The reduction in refining margins is playing through to the international fuel price. The Mean of Platts Singapore (MOPS) diesel index, which is the price index typically followed by local importers, is now comfortably sitting below US$140 / A$200 per barrel (figure 2). Expect further relief at the bowser in the near-term as these price points flow through into the Australian market. 

Figure 2: Mean of Platts Singapore (MOPS) prices for diesel since January 2022 in Australian dollars (source: SP Global).

Going forward, it is unclear how long these lower refining margins will continue. Just prior to the recent drops, S&P Global released their 12-month outlook, showing refining margins will still be elevated (at about half July 2022 levels) beyond June 2023. The major driver of these elevated margins remains the lack of spare refinery capacity and, in the near-term, Chinese export quotas. China currently has 67% of the spare refinery capacity in Asia, but lowered domestic demand and heavily restricted exports has reduced their refineries to 72% utilisation. Analysts are not expecting any change in these settings in the near-term.

 As always, please contact your IOR or Strike Fuels account manager should you have any questions about the implications for your business. If you're not a customer yet, contact us at 1300 457 467 or sales@ior.com.au to find out what we can do to support your business.