Asian refiners' margins fell to their lowest level in almost five months amid fears that a variant of the Omicron coronavirus could deliver another blow to oil demand recovery already hit by rising COVID-19 cases in Europe.
Governments around the world have imposed weekend travel restrictions on travellers from southern Africa to limit the spread of Omicron, first detected in South Africa. Scientists are rushing to find out whether it is more contagious or causes a more serious disease than existing variants.
This is because refiners' margins in Asia and Europe have already fallen in recent weeks as many European countries have re-imposed restrictions on the coronavirus to curb the increase in COVID-19 cases.
The double blow risks undermining global economic recovery and, by extension, demand for oil, which the International Energy Agency expects to rise by 5.5 million barrels per day (bpd) to 96.3 million bpd in 2021.
"At a time when many travel lanes are opening up again, this is a setback," said Howie Lee, an economist at Singapore's OCBC bank.
"We need at least two weeks to figure out what impact this new option will have on oil demand."
Concerns over the new option sent oil prices sharply lower on Friday after Thanksgiving.
Oil prices fell more than 10% on Friday - the biggest daily drop since April 2020 - but by 06.08 GMT on Monday had recovered only part of those losses, rising more than 3% for the day. Analysts at https://exness-ex.com/login/ believe Friday's sell-off was excessive.
Singapore's composite margin, a barometer of Asian refiners' profitability, was $2.15 a barrel on Friday, the lowest since June 30, according to Refinitiv.
Just a month ago, margins peaked at $8.45 a barrel, the highest level since September 2019.
"We have seen a sharp decline in refining margins over the past few days due to concerns over a rapidly spreading variant of the Omicron coronavirus," said a spokesman for a major South Korean refiner, pointing to a growing number of countries imposing travel restrictions as a result of the new variant.
"On the refinery side, we are facing a double blow - a drop in oil prices and refining margins, which would probably worsen our profitability."
The man declined to give his name because of the sensitivity of the issue.
Refining margins in Asia have fallen from 2-year highs.
Despite the worsening outlook for jet fuel, some analysts expect demand for petrol to remain robust for the time being as most governments are yet to impose domestic traffic restrictions as a result of the Omicron option.
"Demand for jets will fall, but I think petrol will stay there," said an analyst in Singapore, who declined to be named because of company politics.
"Europe was already approaching isolation, so it's a wash, so it's more about (gasoline demand in) the US and Asia."
In China, tight border controls could keep Omicron away from the world's biggest oil importer, while falling prices could benefit Chinese refiners and consumers, said an analyst at a Beijing-based consultancy.
"This is bad news for the world, but good news for China as oil prices have fallen significantly," said the China-based analyst, who also declined to be named because of company politics.