(EnergyAsia, July 18 2012, Wednesday) — The following is an edited transcript of an updated podcast by Jonathan Leitch, Downstream Senior Analyst at consultant Wood Mackenzie.

In the update below, Mr Leitch examines what is driving refining margins in the short-to-medium term, with margins recovering in June after declining in May. WoodMackenzie provides monthly product supply demand balances for the main product markets and monthly crude and product prices for the world’s main refining centres.

In June 2012, Brent crude prices fell by $15 a barrel, contributing to very strong refinery margins in Europe and the US as product prices tend to lag movements in crude prices.

But despite the large fall in crude prices, our benchmark margins for refining Dubai in Singapore fell in June. This was partly due to a narrower Brent-Dubai differential which indicates that Asian refiners were paying more for their crude relative to European refiners.

The Atlantic Basin gasoline market was very strong due low stocks in the US and low crude runs in Europe. However, the gasoline market in Singapore was not as strong and gasoline prices in Singapore moved to a wide discount to prices in Europe and the US. Crack spreads for naphtha also fell sharply in Singapore.

Middle distillate cracks were slightly weaker but fuel oil cracks narrowed were at very strong levels.

Our assessment is that crude runs in Asia increased in June as refinery maintenance decreased seasonally, helping to boost the supply of products. But, there was little opportunity to export products to Europe on account of its weak demand caused by the state of its economy.

Our calculated margins for light sweet Tapis crude in Singapore increased in June due to its narrower price premiums over Brent. Light sweet crude supply is increasing and there was an overhang of uncommitted West African crude cargoes which weighed on light sweet crude premiums. Hydroskimming margins were supported by strong fuel oil.

We expect weaker Tapis margins in July and August as its premium increases from the clearing of the overhang of cargoes in West Africa. Brent crude is expected to be supported by lower North Sea production due to maintenance and strikes.

Dubai margins are expected to be little changed in July, remaining relatively weak as crude runs increase further. Dubai margins are forecast to be at or below the seasonal average for the remainder of 2012 due to a combination of high runs, weak demand globally and narrower discounts for Dubai versus Brent.

We forecast crack spreads for gasoline to remain relatively weak due to the restart of refineries in Vietnam and Indonesia. However, some support will come from the partial shutdown of Shell’s Singapore refinery and the shutdown of Thailand’s Bangchak refinery.

We forecast rising exports from Asia to balance stocks. However, they will face competition from high crude runs in the US and higher runs in Europe.

Naphtha crack spreads will be supported by increased petrochemical production as steam crackers return from maintenance and new capacity comes on stream.

We forecast that middle distillate crack spreads will weaken in July due to rising production in Asia and weak demand in Europe. However, the Middle East will provide some support as a result of extra demand for air-conditioning and during Ramadan.

Fuel oil crack spreads are forecast to remain strong in July helped by strong demand from utilities. Lower prices are stimulating bunker demand to provide price support. This will be somewhat offset by high fuel oil stockpiles in Singapore and Rotterdam. Imports from North West Europe are likely to increase in August to weaken fuel oil cracks.