South Korea’s top refiner SK Energy will cut production by more than 8 per cent next month from January levels due to falling margins, prompting it to lower spot diesel exports, industry sources said.

SK will reduce crude processing rates to below 700,000 barrels per day (bpd) in February from 760,000 bpd this month and in December, said sources familiar with the firm’s refining operations. 
The refiner will cut exports of spot gas oil for February to 120,000 tonnes from 180,000 tonnes shipped out this month due to the lower runs, but will boost jet fuel exports by a third because of lower domestic demand amid a balmy winter.
“Margins are bad. Look at fuel oil cracks, they are getting worse and worse,” said one source close to SK’s refining operations, who declined to be named.
Another source said: “The margins are looking bad. SK will cut rates for February.”
SK has a refining capacity of 840,000 barrels bpd. It was running at 780,000 bpd in November when margins were still robust.
An SK spokesman declined to comment on the run cuts.
Asian plants processing Dubai crude saw topping margins of minus $0.61 last week, undermined by poor Chinese demand as independent refiners run on crude supplied by Chinese state refiners instead of straight-run fuel oil. China is Asia’s top fuel oil buyer.
Complex plants in the Singapore refining hub running Dubai crude saw secondary margins fall 22 cents to $5.47, as a mild winter in the Northern Hemisphere limited cross-regional flows of gas oil to Europe on top of easing Chinese import needs.
SK’s decision to cut runs mirrored the move by its Japanese counterparts.
Cosmo Oil said it was cutting January crude refining by 28,500 bpd from its original plan to 552,000 bpd, following Nippon Oil Corp’s move to cut January runs by 30,000 bpd, due to poor domestic demand for kerosene.
SK’s lower February shipments of gas oil included different sulphur grades of 0.005, 0.35 and 0.5 per cent.