Asian gasoil crack overtakes gasoline after 4-week flip as supply balance tilts
13th October 2020 22:26 GMT

Asian gasoil has regained its position as the region's most profitable oil product, with its refinery crack overtaking that of gasoline after four weeks in second place, as gasoil supply tightens just as the gasoline market comes under pressure from ample supply and a weaker US RBOB-Brent complex, market sources said Oct. 13.

The front-month November FOB Singapore 10 ppm sulfur gasoil crack swap -- a measure of the product's relative strength to the crude it is refined from -- was assessed at $4.26/b at the 0830 GMT Asian close Oct. 12, 39 cents/b higher than the front-month November FOB Singapore 92 RON gasoline crack swap, S&P Global Global Platts data showed.

It was the second consecutive session in which the gasoil swap crack was higher than the gasoline swap crack, after the front-month Singapore 92 RON gasoline swap crack had surged to a premium to the Singapore 10 ppm sulfur gasoil swap crack on Sept. 14 for the first time in 2020, when the swaps were assessed at $4.42/b and $4.18/b, respectively.

"The gasoil crack is usually at premium to gasoline because of its wider range of uses in both transport and industrial use, but in September, the large supply of gasoil from China was just too much to ignore," a trader in Singapore said.

Market participants attributed the return of gasoil to pole position to a weaker Asian gasoline complex, which has seen recent bullishness deflate amid indications of rising supply in North Asia.

Refiners in China are expected to increase gasoline exports in H2 October after the Golden Week holiday muted trading activity at the start of the month. Taiwanese refiners were also heard to be raising run rates, with privately-owned Formosa Petrochemical reportedly planning to raise operations at its 540,000 b/d refinery in Mailiao to around 60% of capacity in November from 30% currently.

A weaker US RBOB-Brent crack was also weighing on Asian gasoline crack spreads.

Hurricane Delta has had a weaker-than-expected impact on US refining in recent days, with no major supply disruptions reported in the wake of the weekend storm.

The US RBOB-Brent crack fell to $7.68/b at the close of Asian trade Oct 12, the lowest since Oct. 2 when it was assessed at $7.45/b.

“We are moving into a period of seasonal weakness. Demand in the US is already poor and will remain so toward the end of the year. This will add more drag on Asia,” a Singapore-based market source said.

Gasoil demand remained subdued but resilient as COVID-19 outbreaks continue to suppress consumption around the region, although production cutbacks at regional refineries due to weak margins helped to ease inventory pressure. The recent switch in refinery yields to maximize gasoline output over gasoil to capture better margins has also capped gasoil exports.

Gasoil outflows from Japan and South Korea were also expected to decline further ahead of winter, when Northeast Asian refineries typically maximize kerosene production to meet heating demand.

Reflecting the slight uptick in the gasoil complex Oct. 12, the contango structure in the balance October/November gasoil timespread narrowed 4 cents/b from the previous session to minus 47 cents/b at the Asian close, Platts data showed.

Meanwhile, the Asian jet fuel/kerosene market continues to struggle due to the COVID-19 pandemic, with international air passenger demand likely remain depressed due to border restrictions, with little indication of recovery before year end, the Association of Asia Pacific Airlines said late September.

Peak seasonal demand for heating oil in winter could provide some respite; the FOB Singapore jet fuel/kerosene swap spread to the Dubai crude swap was assessed at $1.37/b at 0830 GMT Oct. 12, extending its uptrend since the start of the month after being in negative territory throughout September.


Platts ,
13th October 2020 22:26 GMT

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