Singapore physical 10 ppm gasoil crack hits 6-month high on tight supply balances
9th February 2021 03:32 GMT


The Singapore physical 10 ppm sulfur gasoil crack to front-month cash Dubai hit a six-month high, with the boost coming on the back of tighter supply balances seen in the coming months.

At the Asian close Feb. 8, the benchmark Asian ultra low sulfur diesel physical crack to front-month cash Dubai climbed up 9 cents/b to $6.42/b. This is the highest the crack has been since Aug. 6, 2020, when it was assessed at $6.46/b, S&P Global Platts data showed.

The upward climb in the crack underscores the slow, but steady improvement seen in the Asian gasoil complex since the end of 2020, following a period of severe demand destruction caused by multiple lockdowns and varying degrees of social distancing measures.

But traders were quick to caution that although the physical gasoil crack is expected to emerge stronger this year, the product still faces an uphill climb to recovery with the product spread to crude still trending at sharply lower levels as compared to a year ago. This was borne out with Platts data showing that on Feb. 7, 2020, the FOB Singapore 10 ppm sulfur gasoil crack to front month cash Dubai had been assessed 52.7% higher at $13.58/b.

At its weakest, the physical gasoil crack to front-month cash Dubai had been assessed at an all time historical low of just $1.63/b on Sept. 24, 2020.

Market participants said that the dismal margins for gasoil last year, coupled with even worse margins for its co-distillate jet fuel, led several refiners to implement discretionary run cuts in an effort to rein in production and stem losses.

Over time however, and with the extended run cuts still on-going, this has resulted in supply balances tightening and consequently spurring margins upwards.

With the exception of China, leaner production volumes have been seen from the other major North Asian gasoil supply centers of Japan and South Korea, with this helping to cushion some of the impact of the higher export volumes seen from China over February.

The leaner production volumes from Japan was also noted in an S&P Global Platts Analytics report released late Feb. 3, which stated that the country's gasoil output was lower year on year by 16,000 b/d as refiners cut back on crude runs.

“Asian gasoil balances could see further tightening over the next few months with upcoming refinery maintenance, which could see some operators opt for earlier and longer turnarounds due to the depressed margins. Several refineries such as ENEOS Mizushima and Chiba have announced CDU shutdowns lasting up to four months starting in February," Platts Analytics said in another report Feb. 5.

In addition, Platts Analytics also noted that a flow of Asian gasoil barrels to the West could further drain volumes out of the region, with East to West movements supported by lower freight rates which have been improving otherwise unfavorable arbitrage economics.

"Additional movement of gasoil from Asia to Europe could begin to tighten gasoil balances in the East of Suez ... Platts data showed clean tanker rates between West Coast India to UK Continent currently at the lowest since February 2018," the report said.

Bunkerworld .,
9th February 2021 03:32 GMT