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Asia Distillates-Gasoil cash premiums edge lower, front-month spread widens

SINGAPORE, Jan 20 (Reuters) – Asia’s cash premiums for 10 ppm gasoil edged lower on Monday, hurt by weaker deals in the physical market, but the front-month spread for the transportation fuel widened its backwardation amid expectations for strengthening near-term demand. Cash premiums for 10 ppm gasoil <GO10-SIN-DIF> were at 15 cents per barrel over Singapore quotes on Monday, down from 17 cents per barrel on Friday. Refining profit margins for gasoil with 10 ppm sulphur content climbed 14 cents to $12.55 per barrel over Dubai crude during Asian trading hours, but still within close sight of an eight-month low of $12.27 touched last week. Refining margins, also known as crack spreads, for the Singapore benchmark 10 ppm gasoil grade have slumped 22% so far this year amid steady regional supplies of the distillate fuel, while the market has not seen any major boost in demand from new regulations for cleaner marine fuels. The gasoil market was expected to benefit from a section of ship-owners switching to marine gasoil (MGO) in order to comply with International Maritime Organization (IMO) rules that prohibit ships from using fuels containing more than 0.5% sulphur. But in the fuel switch so far, very low sulphur fuel oil (VLSFO) has outperformed market expectations. Singapore bunker sales in December jumped to 4.5 million tonnes to the highest since January 2018 as demand for low-sulphur fuel strengthened in the backdrop of the new ship fuel rules. The incremental demand for gasoil due to IMO 2020 would likely pick up over the next couple of months but with a much lesser scope than expected earlier, industry analysts said. The February/March time spread traded at a premium of 35 cents per barrel on Monday, 13 cents higher from Friday, Refinitiv Eikon data showed. Backwardation, when the front-month contract is more expensive than subsequent months, makes it uneconomical to store the product, resulting in a drawdown in inventories. It is usually seen as a sign that the market is rebalancing and prices are likely to head higher in future months. Meanwhile, cash premiums for jet fuel <JET-SIN-DIF> rose to 28 cents per barrel over Singapore quotes on Monday, compared with 19 cents per barrel on Friday. Refining profits for jet fuel were at $12.03 per barrel over Dubai crude on Monday, compared with Friday’s $11.86 per barrel. GLOBAL DISTILLATE CRACKS PLUMMET ON WEAK DEMAND – Margins to refine crude into distillates like heating oil and diesel have slumped around the globe due to disappointing demand, prompting speculation that some refiners could start to reduce processing rates. – In the United States, imports from markets including Europe have boosted supply, while milder weather has undercut distillate demand, which typically rises during winter. That is oversaturating the market, especially in the Northeast – the world’s biggest heating oil market – where inventories are already high. – European diesel margins <LGOc1-LCOc1> fell below their 10-year average for this time of the year to $11.39 a barrel on Friday. SINGAPORE CASH DEALS – Four gasoil trades, three jet fuel deals. – For more information, click OTHER NEWS – Oil prices rose to their highest in more than a week on Monday after two large crude production bases in Libya began shutting down amid a military blockade, setting the stage for crude flows from the OPEC member to be cut to a trickle. – India’s imports of Middle Eastern oil plunged to a four-year low in 2019, tanker data obtained from sources shows, as the energy-hungry nation diversifies its supplies to cut costs and help shield itself from geopolitical tensions. India, the world’s third-biggest oil consumer, imports about 84% of its oil needs and traditionally relies on the Middle East for the majority of its supplies. ASSESSMENTS MID-DISTILLATES CASH ($/T) ASIA CLOSE Change % Change Prev Close RIC Spot Gas Oil 0.5% 74.44 0.92 1.25 73.52 <GO-SIN> GO 0.5 Diff -2.08 0.04 -1.89 -2.12 <GO-SIN-DIF> Spot Gas Oil 0.25% 75.15 0.92 1.24 74.23 <GO25-SIN> GO 0.25 Diff -1.37 0.04 -2.84 -1.41 <GO25-SIN-DIF> Spot Gas Oil 0.05% 76.29 0.92 1.22 75.37 <GO005-SIN> GO 0.05 Diff -0.23 0.04 -14.81 -0.27 <GO005-SIN-DIF> Spot Gas Oil 0.001% 76.67 0.85 1.12 75.82 <GO10-SIN> GO 0.001 Diff 0.15 -0.02 -11.76 0.17 <GO10-SIN-DIF> Spot Jet/Kero 76.27 1.00 1.33 75.27 <JET-SIN> Jet/Kero Diff 0.28 0.09 47.37 0.19 <JET-SIN-DIF> For a list of derivatives prices, including margins, please double click the RICs below. Brent M1 Gasoil M1 Gasoil M1/M2 Gasoil M2 Regrade M1 Regrade M2 Jet M1 Jet M1/M2 Jet M2 Gasoil 500ppm-Dubai Cracks M1 Gasoil 500ppm-Dubai Cracks M2 Jet Cracks M1 Jet Cracks M2 East-West M1 East-West M2 LGO M1 LGO M1/M2 LGO M2 Crack LGO-Brent M1 Crack LGO-Brent M2 (Reporting by Koustav Samanta; Editing by Anil D’Silva)

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