Asian refiners, which account for approximately 40% of the world's refining capacity, are currently experiencing stabilised profit margins at relatively weak levels. The shift in profitability has notably transitioned from gasoline to diesel, providing a new dynamic within the industry.

The profit margin, or crack, for a standard refinery in Singapore processing Dubai crude has stabilised. As of the recent Wednesday, it stood at $3.59 per barrel, a slight increase from $3.40 per barrel recorded previously. This margin, apart from a brief dip to $0.90 per barrel in late May, has generally ranged between $2 to $4.50 per barrel since early April. However, it represents a significant decrease from the peak of $9.91 per barrel achieved on February 13, 2024.

The financial challenges for Asian refiners are primarily driven by the impact of OPEC+ production cuts and easing prices for vital refined products like diesel and gasoline. The situation is further exacerbated by demand concerns, particularly from China, the world's second-largest economy, which has struggled to gain economic momentum.

The gasoline market, in particular, has exhibited signs of stress. The profit margin in Singapore for converting Brent crude into a barrel of 92-RON gasoline decreased to $4.85 per barrel recently. Despite a modest recovery from an eight-month low of $3.50 per barrel on June 13, the overall trend has been downward since late January, when margins hit a high of $16.73.

Gasoline demand, both within Asia and in significant export markets such as Europe and the United States, has been disappointing. Consequently, refineries might need to reduce throughput to manage supply and seek more sustainable profit margins.

Conversely, the diesel market paints a slightly better picture. The profit margin for producing gasoil in Singapore fell to a one-year low of $13.81 per barrel on May 23 but has since rebounded to $16.82 per barrel. This improvement could be attributed to decreasing gasoil supplies in June, with top exporter India and significant shipper China reporting lower export volumes amid refinery maintenance activities.

The inventory of middle distillates, including diesel, in Singapore has decreased to a near four-month low of 8.86 million barrels. This indicates a potential balancing of supply and demand in the near future. However, it remains uncertain whether the rise in margins is due to increased regional demand or simply reduced supply.

A key factor influencing the future margins and market dynamics will be the decision of Saudi Arabia, the world's largest oil exporter, regarding its official selling prices (OSPs) for August. Notably, Saudi Aramco lowered its OSPs for Asian customers for July-loading cargoes by 50 cents per barrel, marking the first reduction in five months. However, this reduction has not significantly alleviated the financial pressures on Asian refiners.

Maintaining crude oil prices at around $85 per barrel for Brent has been a goal for Saudi Arabia and its OPEC+ partners, potentially limiting how much Aramco might lower August OSPs. Ultimately, the interplay between crude oil pricing policies and refining margins will be pivotal in shaping the market scenario in the coming months.

In conclusion, while the diesel market shows signs of recovery, the gasoline market continues to struggle. Asian refiners remain in a challenging position, navigating between strong crude prices and variable product demands. The market outlook will heavily depend on regional demand trends, supply adjustments by refiners, and the strategic pricing decisions by major oil exporters.