Hengyuan price rise is just the beginning. Does anyone here know yesterday's 28 Apr 2022 Asia gasoline crack spread price? It's historical high, USD22.28 (this is industry spot price). Just to give reader here a comparison, in May 2019, the lowest rate quoted was USD0.83, yes, less than USD1! End of last month when China imposed Shanghai lock down, the spread came down to USD9+ but still high by historical standard but quickly recovered. So why the current run is not over yet? Many factors.
Russia Ukraine war. Russia refining capacity is close to 7mill bpd and by now over 50% is affected. Crude oil sales always appeared on headlines but people in the industry know refined products equally impacted and Russia is also a major exporter. Western buyers shunning Russia refined products and need to source for alternatives. Refiners are not like rubber gloves manufacturers where you just need a few months to expand capacity. They take years! And given the uncertainty as to when Russian refiners would go online again, no one is keen to plan for new ones. In the short to medium term, good luck trying to replace the millions of refining capacity that just went offline. Also, in support of Ukraine war and her refiners being bombed by Russia, western countries will also support her needs.
Next, lifting of Covid 19 restrictions worldwide. People going to travel more and this can be seen from the rise in jet fuel price. Due to jet crack spread (USD47.53) higher than diesel (USD37.38), European refiners are diverting their production to producing more jet fuel. This will push up diesel spread further up sooner or later, which will benefit Hengyuan.
Lastly, if we were to fast forward to end of this year when the western world were to cut off its natural gas intake from Russia completely, where and what will replace it completely? It will be a mixture of LNG, natural gas and refined products and when winter comes, you can imagine another demand spike again. And pray hard that winter doesn’t get too cold! A link here for further reading https://www.reuters.com/business/energy/asia-oil-refiners-rake-record-profits-tight-global-supplies-2022-04-28/
All above information gathered from respectable news agencies, which due to copyright reason, cannot be quoted here. Anyone who has access to them will come to the same conclusion. Russia Ukraine conflict will not end soon and unless Russia is willing to return the occupied territories, western sanctions are here to stay. This means the current situation in the energy market will only get worse before they get better. Combined with multiple factors, it's a perfect storm in the making. For Hengyuan, I think the June quarter result will be the one to lookup for, which I believe it’s just the beginning. Please note that the above are my own opinions, feel free to disagree. And yes, I am vested.
All the best to all who read this!