Asia-Pacific oil refiners will shut 5.2 per cent of total capacity in the second quarter, more than a third higher than last year, tightening regional fuel supplies and helping reverse a slide in plant margins.

A total of 1.135 million barrels per day (bpd) of crude distillation capacity will be shut for maintenance, led by more closures in Japan and China despite a lighter schedule in the region’s top fuel exporter South Korea.
Refiners will still prefer to gain higher returns in Western export markets in the event of workable arbitrage windows, rather than cutting exports because of higher regional maintenance.
The outages are heaviest from May onwards, with half a million barrels of capacity due to close mainly in Japan.
“The current weak refining margins create a window of opportunity for refiners to conduct maintenance, especially in anticipation of weaker demand in the second quarter,” said analyst Eddy Loh from DBS Vickers Securities in Shanghai.
Refiners had been running near full rates until recently when moribund diesel demand and bloated fuel oil inventories drove margins into the dumps, ending a three-year profit bonanza.
Singapore refineries cracking benchmark Dubai crude recorded profit margins of an average $3.92 per barrel in January, down from a peak in September of $11.68 per barrel.
Plants with simple topping units slumped to losses of 62 cents per barrel in January compared to $4.98 profits in October.
Asian refiners enjoyed healthy profits in the past few years after industry consolidation and a fuel buying surge from growing economies such as China, but higher retail prices have dampened consumer demand while crude costs ballooned on supply worries.
But with the region set for more plant turnarounds, the pressure on margins may ease as the tighter supplies could offset the lower demand, analysts said.
“The high level of maintenance activities in the second quarter could result in reduced supply and provide support to refining margins," Loh said. “This should be positive for those refineries that will continue to run in the second quarter.”
While the crude market will be pressured by lower demand from refiners, oil products markets will look forward to higher gasoline imports into Japan – the world's third-biggest energy consumer – ahead of the peak northern summer driving season.
Refiners in Japan will take a bigger-than-usual 13 per cent of their capacity offline, or nearly 650,000 bpd on average between April and June, sapping the country’s crude oil demand.
A crunch will take place in May, when about 17.6 per cent of overall capacity, or nearly 840,000 bpd, will be offline.
Many shutdowns in the country are taking place for the mandatory maintenance required once every four years, though analysts said refiners will also be keen to take a breather.
“Refining profits have been strong over the last couple of years and refinery utilisation has been high,” said analyst Victor Shum from Purvin & Gertz.
“So it’s time to reinvest the earnings in maintenance while doing some upgrades at the same time.”
Traders expect Japan to ramp up gasoline imports this year, compared to volumes of 62,000 bpd imported in 2005 and 60,000 bpd the year before, government data showed.
China, globally the second-top oil consumer after the US, will also expand maintenance works in the second quarter this year to nearly 200,000 bpd from 75,000 bpd last year, taking a pause after operating at full tilt for the past several months.
Chinese refiners, averse to costly fuel imports from international spot markets due to artificially capped domestic prices, have been relying heavily on local output.
On the other hand, South Korean refiners will have lighter maintenance as they completed major works last year. The country will take 165,000 bpd of capacity offline this spring, compared with 235,000 bpd last year.
This will enable South Korea to keep fuel exports flowing to neighbouring markets and perhaps jet fuel and gasoline to the US West Coast or distillates to Europe, if arbitrage economics allow.
Taiwan, another key fuel exporter in Asia, will have fewer turnarounds, reducing such works to 49,000 bpd from 82,000 bpd last year.