"Oil refining margins" have become a hot topic again after nearly tripling, prompting questions about whether refineries are earning abnormally high profits or if the numbers simply reflect global energy market mechanisms.
Refinery operators have explained that the observed refining margins do not yet account for significant costs such as crude oil premiums, transportation fees, and insurance, all of which have recently increased by several baht per liter.
Nonetheless, the Ministry of Energy is preparing to summon refinery operators for discussions to clarify the reasons behind the sharp rise in refining margins and to assess the impact on domestic fuel prices if energy costs remain elevated.
Analysts from Krungsri Securities view that this issue could generate short-term negative sentiment toward refinery stocks, suggesting that investment strategies during this period should focus on a defensive stance while awaiting policy clarity.
The Petroleum Refining Industry Group of the Federation of Thai Industries (the Refinery Group) has clarified the "high refining margin" issue to foster a correct understanding of the true price mechanisms and costs in the refinery industry.
The refining margin reported in the news (rising from 2 baht per liter to approximately 6 baht per liter) is merely an index of the price spread in the global oil market, which does not yet deduct key costs borne by refineries.
These costs include crude oil premiums, shipping freight, and insurance, which have currently risen by about 3-6 baht per liter.
Additionally, operating expenses, gains or losses from oil inventory, and profits or losses from price risk management are all factors that refining margins do not reflect in actual financial performance.
At the same time, Thailand’s oil trading system is linked to global market prices; refineries cannot set crude oil or refined product prices independently but must follow market prices on both sides, leading to volatility in line with global energy market conditions.
In practice, refineries must purchase crude oil 1-2 months in advance to maintain continuous production, exposing them to price volatility risks since the selling price of refined products at a future date is unknown when buying crude.
Thus, refining margins fluctuate with the market cycle; at times, margins may fall very low or even below operating costs.
Nevertheless, refineries must continue operations to ensure Thailand has sufficient fuel supplies and to avoid energy shortages, which is a key mission for maintaining national stability.
Regarding the Fuel Fund, it plays a crucial role in stabilizing domestic fuel prices by compensating oil traders to manage retail prices for consumers, not by subsidizing refinery operators as some misunderstand.
Industry analysts told Thairath Money that "refining margin" is the spread from converting crude oil to refined products, based on global market prices, with Thailand referencing Singapore prices.
Although refining margins indicate increased revenue for refineries, this does not necessarily mean profits rise accordingly, especially in wartime conditions where refining costs also increase; profit margins depend on the refined product mix.
The pricing structure before reaching consumers follows this sequence: crude oil price > refining margin > refinery gate price > plus taxes, Fuel Fund contributions, VAT, and marketing costs > resulting in pump prices.
Normally, when refinery gate costs rise, the government uses the Fuel Fund as the first line to absorb compensation to support prices; if the fund is insufficient, tax or marketing fee reductions may be used, while adjusting refining margins directly would require new legislation.
What remains to be followed is the public's question during the Middle East conflict-driven oil price surge: how much "excess profit" energy businesses have earned, which awaits clarification from the Federation of Thai Industries on profit structure disclosure or detailed explanations to the public.
The Ministry of Energy plans to invite refinery operators for discussions to explain factors driving the sharp rise in refining margins within a short time, which contrasts with the global crude oil price trend that has not increased proportionally.
The meeting aims to assess the impact on domestic retail fuel prices, consider measures to alleviate the public's cost of living if energy costs remain high, and set future policy directions.
Meanwhile, investors have started to monitor this issue closely, as government measures to regulate energy price structures could affect refinery profit trends in the Thai stock market.
A securities analyst from Krungsri Securities noted that from a capital market perspective, this issue might create short-term negative sentiment toward refinery stocks.
Investors may weigh the risk that the government could ask operators to help mitigate the public’s energy cost burden in some form. Research suggests a short-term defensive investment strategy in refinery stocks, recommending BCP shares.
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