Dividends and Global gas prices collapse, hurting refiners’ profit

Even though thanks to search engine such as Google we have more information to be gather and digested, we all tend to generalize. For example oil prices go up, oil and gas companies benefit, which is partly true. Oil and gas producers benefit, however refinery companies may or may not benefit.

In an article by Mohi Narayan, Laura Sanicola and Shadia Nasralla of Reuters, a sudden crash in gasoline prices has dented refiners’profits, although consumers and politicians are benefiting. The crash in prices pushed up inventories in key trading hubs as people consumed less gasoline.

Gasoline is a product through the massive refineries but it is not the most profitable fuel.

Asia’s top fuel exporter is Taiwan’s Formosa Petrochemical Corp will be reducing the operating rates at their residue fluid catalytic cracking (RFCC) units by 5% to produce more VLSFO (very low sulfur fuel oil) because the margins are better. The VLSFO can be sold as marine fuel (ships) or used as a feedstock to produce gasoline later.

Asian gasoline margins fell more than 102% in July to a discount of 14 cents a barrel to Brent crude after hitting a record $38.05 a barrel in June.

Indonesia is Asia’s largest gasoline importer, but the consultancy FGE sees Indonesian declines along with Asia of 240,000 tonnes. FGE expects Asian gasoline demand excluding China to improve marginally between July and September averaging 80,000 barrels a day lower than levels seen during the same period in 2019, as high retail prices weigh in on demand.

In the US, gasoline products that are derivatives of gasoline, was about 8.5 million barrels a day or 7.6% lower than the same time as last year, government data shows.

In refineries there is a 321 crack spread, a proxy for refining margins, it has fallen to the lowest point in the last 3 months at $37.57 a barrel down from $60 a barren in June.

Linking to dividend paying stocks, as a consumer you think about the price, as an investor you want to know the margin to be in profits. If the margin stays high, the company makes money, when margins go down profits are down. In the companies you invest in, learning what the margins are and what they are expected is the key to whether you should hold or look for alternatives.

There are more questions than answers, till the next time – to raising questions.

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