ASIA’S biggest oil consumers are flooding the region with fuel as refining output is exceeding consumption amid a slowdown in demand growth, pressuring industry profits.

Since 2006, the Asia-Pacific has been the world’s biggest oil consuming region, led by traditional industrial users South Korea and Japan along with rising economic powerhouses China and India.

Yet overbuilding of refineries and currently sluggish demand growth have caused a jump in fuel exports from these demand hubs.

Car sales in China, the world’s second-biggest oil user, fell for the first time on record last year, and early 2019 sales also remain weak, implying a slowdown in gasoline demand.

For diesel, China National Petroleum Corp. in January said it expected demand to fall by 1.1 percent in 2019. That would be China’s first annual demand decline for a major fuel since its industrial ascent started in 1990.

The surge in fuel exports combined with a 25-percent jump in crude oil prices so far this year has collapsed Singapore refinery margin, the Asian benchmark, from more than US$11 per barrel in mid-2017 to just over US$2.

Combine the slumping margins with labor costs and taxes and many Asian refineries now struggle to make money.

The squeezed margins have pummelled the stocks of most major Asian petroleum companies, such as Japan’s refiners JXTG Holdings Inc. or Idemitsu Kosan, South Korea’s top oil processor SK Innovation, Chemical Corp. and Indian Oil Corp., with some companies dropping by about 40 percent over the past year.

Jeff Brown, the president of energy consultancy FGE, said the surge in exports and resulting oversupply were a “big problem” for the industry.

“The pressure on refinery margins is a case of death by a thousand cuts. ... Refinery upgrades throughout the region are bumping up against softening demand growth,” he said.

The profit slump follows a surge in fuel exports from China, India, Japan, and South Korea. Refinitiv shipping data shows fuel exports from those countries have risen three-fold since 2014, to a record of around 15 million tons in January. (SD-Agencies)