Via Reuters, ICYMI, the info that Asia crude imports on track for a 22% annual fall to a 10-year low in April as the Hormuz closure forces refinery run cuts. Diesel and jet fuel output losses seen at up to 2 million bpd.
Summary
- Asia's crude imports on track to fall 22% year-on-year to 20.4 million bpd in April, the lowest level since 2016, according to Kpler
- Asian refinery runs fell to 29.4 million bpd in March and are set to slip further to around 28.5 million bpd in April and May
- Of the nearly 12 million bpd of crude unable to reach Asia in March, around 8 million bpd was medium-sour crude, the grade most Asian refineries are designed to process
- Light-sweet crude now accounts for 21% of Asia's crude slate in April, a record high, up from 11% in February
- Middle East crude typically yields 60% middle distillates versus around 40% for WTI, compounding the diesel and jet fuel shortfall
- Total middle distillate supply losses in April estimated at 1.8 to 2.0 million bpd by Kpler, most of that diesel
- China has curtailed fuel exports to preserve domestic supply; throughput fell to 13.4 million bpd in the week to April 17, down from 15.4 million bpd before the war
- Refinery utilisation rates in South Korea and Japan expected to fall to 65% in late April and early May, well below normal levels of 70% to 80%
- Singapore refinery utilisation has averaged below 50%, down from a typical 70%
- Recovery possible from June but dependent on a resolution to the Hormuz closure
Asia's refining sector is absorbing the deepest crude supply shock in a decade, with the Iran war's effective closure of the Strait of Hormuz forcing run cuts across the region and threatening to drain diesel and jet fuel availability by at least 1 million barrels per day in the near term, and potentially as much as 2 million bpd according to some estimates.
Asia accounts for 37% of global refining output and ordinarily sources around two-thirds of its crude from the Middle East. The closure of the Hormuz strait has therefore hit the region harder than anywhere else. Crude imports to Asia are on track to fall 22% on an annual basis to 20.4 million bpd in April, provisional data from Kpler shows, the lowest level since 2016, despite refiners aggressively snapping up alternative supplies and paying record premiums to secure them.
The scale of the run cuts is significant. Asian refinery throughput fell to 29.4 million bpd in March, according to the International Energy Agency, and is set to slip further to around 28.5 to 28.6 million bpd in both April and May. Energy Aspects puts the April figure even lower at 28.4 million bpd, down from 30.4 million bpd in March. Analysts at FGE NexantECA note that the deepest cuts are occurring in April, as the shortfall in Middle East supply persisted while alternative barrels are only now beginning to arrive.
The crude grade switch is compounding the supply problem in a structurally damaging way. Of the nearly 12 million bpd of crude unable to reach Asia in March due to the Hormuz closure, around 8 million bpd was medium-sour crude, the grade most Asian refineries are specifically designed to process in order to maximise diesel output. To fill the gap, refiners have turned to lighter alternatives including West Texas Intermediate and Mars grades from the US, Kazakhstan's CPC Blend and West African sweet crude. The share of light-sweet crude in Asia's overall crude slate hit a record high of 21% in April, up from just 11% in February, according to Vortexa.
The problem is that lighter crudes produce significantly less diesel and jet fuel. Middle East crudes typically yield around 60% middle distillates, compared with roughly 40% for WTI. Across Asia's roughly 30 million bpd refining system, even a 1% to 2% drop in distillate yields translates into a loss of 250,000 to 500,000 bpd of diesel and jet supply, according to Rystad Energy. Combined with government export curbs and outright refinery run cuts, total diesel and jet fuel availability could be reduced by around 1 million bpd in the near term. Kpler's modelling and refining manager Sumit Ritolia puts total April middle distillate supply losses at 1.8 to 2.0 million bpd, the bulk of it diesel.
The picture varies across the region but the direction is uniformly negative. China, home to the world's largest refining sector, has curtailed fuel exports to protect domestic supply, with throughput falling from 15.4 million bpd before the war to around 13.4 million bpd in the week to April 17. State-owned Chinese refineries have prioritised transportation fuels over petrochemical feedstocks as an energy security measure. In South Korea and Japan, utilisation rates are expected to fall to around 65% in late April and early May, well below the normal range of 70% to 80%. Singapore's utilisation rate has already dropped to below 50%, down from a typical 70%. India's crude runs fell nearly 13% to around 5.0 million bpd in April compared with February levels.
Some analysts anticipate a partial recovery beginning in June, but that outlook is entirely contingent on a resolution to the Iran war and a reopening of the Strait of Hormuz. Until that happens, Asia's refining sector and the global fuel markets that depend on it remain under severe and worsening strain.
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The scale of Asia's refining disruption has direct and immediate implications for global middle distillate markets. A combined supply loss of up to 2 million bpd of diesel and jet fuel in April alone represents a significant tightening of already strained fuel markets, with knock-on effects for transport, logistics, aviation and industrial sectors across the region and beyond. The forced pivot to lighter crude grades compounds the problem structurally, as Asian refineries optimised for medium-sour Middle East crude are less efficient when processing WTI and West African alternatives. Elevated diesel and jet fuel prices feed directly into inflation via freight and energy costs, adding to the broader macro pressure already building from the Iran war. Any further delay in resolving the Hormuz closure will deepen and extend these supply losses well into the northern hemisphere summer.
