Refinery Margins Under Pressure: Downstream Advisory Implications

Global refinery margins have come under sustained pressure in 2026, and the downstream advisory implications for asset owners and operators are significant. After the exceptional margin environment of 2022–23 — driven by the disruption of Russian product flows and the post-pandemic demand recovery — refining economics have normalised sharply, with complex refinery margins in Asia averaging USD 6–8 per barrel compared to the USD 20+ levels seen at the peak.

The structural drivers of margin compression are well understood. Global refining capacity has expanded materially over the past three years, with large new facilities in the Middle East and China adding over 2 million barrels per day of incremental capacity. Simultaneously, product demand growth has moderated as economic activity in China has slowed and fuel efficiency improvements in the vehicle fleet have begun to reduce gasoline consumption in mature markets. The result is a market where the marginal refinery is operating at or below cash breakeven, creating pressure for capacity rationalisation.

In Asia, the advisory implications are playing out across several dimensions. For integrated oil companies with refining assets, the question is whether to invest in upgrading existing facilities to process heavier, cheaper crude slates — which can improve margins but requires significant capital expenditure — or to divest non-core refining assets and redeploy capital into upstream or trading activities. Arkadia has advised on two refinery divestiture mandates in Southeast Asia in the past twelve months, both involving the sale of simple hydroskimming refineries to regional buyers with lower cost of capital requirements.

For independent refiners, the challenge is more existential. Without the crude supply advantages of integrated majors or the trading optionality of commodity houses, standalone refiners are increasingly vulnerable to margin cycles. The most resilient independent refiners in Asia are those that have invested in petrochemical integration — converting refinery by-products into higher-value chemical feedstocks — and those with long-term crude supply agreements that provide some insulation from spot market volatility.