SG refining margins to rise to $3-$4 per barrel in 2022: Moody's

Higher vaccination rates and eased movement restrictions drive demand for transportation fuels.

Singapore's refining margins will rise in 2022 from the the current average of nearly $1, according to a report from Moody's Investor Service.

"We expect Singapore's refining margins to rise to $3 to $4 per barrel in 2022 from the average of nearly $1 per barrel for most of 2021. Still, they will remain low in 2022 versus historical levels," said Moody's analyst Hiu Ting Sim. "The road to recovery will be bumpy as sporadic resurgence in infections could result in lockdowns. Low refining margins in 2020-21 have hit refiners, and we expect unprofitable refineries to eventually shut down or be converted to other purposes."

Asian refiners' margins, as a whole, are expected to increase in 2022 as eased movement restrictions and higher vaccination rates drive demand for transportation fuels.

Oversupply risks is expected keep a lid on the rise in refining margins. Refiners with higher complexity and downstream operations are more insulated from the squeeze on refining margins. 

"Even as energy transition plans come to the fore for Asian refiners, their financial capacity to invest will be constrained if refining margins remain low. Absent equity raising or asset sales, the financial leverage of companies seeking significant diversification with little immediate earnings accretion will be elevated if refining margins do not improve materially," the report read.