Refinery profit margins decline in Asia and Europe

Refineries in Asia and Europe are struggling to maintain profitability despite rising fuel prices, driven primarily by escalating crude oil shipping costs. According to the London Stock Exchange Group (LSEG), refining margins in Rotterdam fell to negative $10.95 per barrel on October 5, while the benchmark index in Singapore dropped below negative $4 per barrel on September 10.

While the crack spread—the difference between petroleum product prices and crude oil costs—has seen some strength in diesel futures, the surge in transportation costs is offsetting these gains. Shipping rates for Very Large Crude Carriers (VLCC) have spiked to between $20 and $40 per barrel on routes connecting the Middle East to Asia and Europe, as well as routes from Africa to Europe. These rates are more than 10 times higher than normal levels.

The volatility is linked to escalating tensions in the Middle East and the practical blockade of the Strait of Hormuz, which has significantly impacted global shipping logistics and crude oil pricing.