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Asia Distillates-Weak demand, ample supply push gasoil cracks to over 2-1/2 year low

SINGAPORE, Jan 22 (Reuters) – Asian refining margins for 10 ppm gasoil plunged on Wednesday to their weakest since mid-2017, while cash premiums for the transportation fuel lingered near their lowest levels in over a month. Steady supply and a lack of buying interest have pushed gasoil margins to their lowest in more than 2-1/2 years, while an expected demand boost following a switch to cleaner marine fuels this year is yet to materialize. Refining margins, also known as cracks, for gasoil with 10 ppm sulphur content dropped to as low as $11.70 per barrel over Dubai crude during Asian trading hours, compared with $12.61 a barrel on Tuesday. Gasoil profits have dropped 27% since the International Maritime Organization (IMO) banned ships from using fuels with sulphur content above 0.5% from Jan. 1, but traders predict demand from ship-owners will increase over the next couple of months, but at a slower rate than expected earlier. While some ship-owners are expected to switch to marine gasoil (MGO) to comply with the new IMO rules, ship-operators have so far preferred very low sulphur fuel oil (VLSFO) over MGO, as VLSFO has better calorific properties and other technical advantages. Cracks for the benchmark gasoil grade in Singapore are currently at their lowest seasonal level in the last four years, Refinitiv Eikon data showed. Low demand has eroded distillate margins across the globe, prompting speculation that some refiners could start reducing processing rates. U.S. distillate margins <HOc1-CLc1> dropped to their weakest since July 2018 this week, while European diesel margins <LGOc1-LCOc1> fell below their 10-year average for this time of the year last week. Cash premiums for 10 ppm gasoil in Singapore <GO10-SIN-DIF> slipped to 15 cents a barrel to Singapore quotes on Wednesday, down from 18 cents per barrel on Tuesday. Meanwhile, jet fuel cracks dropped $1.01 to $10.72 per barrel over Dubai crude on Wednesday, their lowest since June 2017. Refining profits for aviation fuel have weakened in recent weeks, partly weighed down by a milder winter in northeast Asia this year, which has kept a lid on the usual demand uptick for heating kerosene that belongs to the same grade of oil products as jet fuel. Cash premiums for jet fuel <JET-SIN-DIF> were at 40 cents per barrel over Singapore quotes on Wednesday, compared with 42 cents per barrel a day earlier. China’s week-long Lunar New Year holiday, which starts later this week, is expected to boost aviation passenger demand in the region. FUJAIRAH STOCKS – Middle-distillate inventories in the Fujairah Oil Industry Zone fell 26.4% from a week earlier to 3.2 million barrels in the week to Jan. 20, data via S&P Global Platts showed. – Stocks of middle distillates in the Fujairah oil hub averaged 2.4 million barrels in 2019, compared with a weekly average of 2.8 million barrels in 2018, Reuters calculations showed. – Weekly Fujairah middle distillate stocks have more than doubled in value, compared with a year earlier. SINGAPORE CASH DEALS – One gasoil trade, no jet fuel deals. – For more information, click OTHER NEWS – China will give value-added tax rebate for bunker fuel that is served to supply the international vessels at Chinese ports, the Ministry of Finance said on Wednesday. The policy is expected to encourage domestic production of the fuel, which now is mainly imported from Singapore and South Korea. – Oil prices dropped on Wednesday as the International Energy Agency’s (IEA) forecast of a market surplus in the first half of this year was enough to cancel out concerns about military disruptions that have slashed Libya’s crude output. ASSESSMENTS MID-DISTILLATES CASH ($/T) ASIA CLOSE Change % Change Prev Close RIC Spot Gas Oil 0.5% 73.13 -0.52 -0.71 73.65 <GO-SIN> GO 0.5 Diff -2.01 0.01 -0.50 -2.02 <GO-SIN-DIF> Spot Gas Oil 0.25% 73.84 -0.52 -0.70 74.36 <GO25-SIN> GO 0.25 Diff -1.30 0.01 -0.76 -1.31 <GO25-SIN-DIF> Spot Gas Oil 0.05% 74.98 -0.52 -0.69 75.50 <GO005-SIN> GO 0.05 Diff -0.16 0.01 -5.88 -0.17 <GO005-SIN-DIF> Spot Gas Oil 0.001% 75.30 -0.54 -0.71 75.84 <GO10-SIN> GO 0.001 Diff 0.15 -0.03 -16.67 0.18 <GO10-SIN-DIF> Spot Jet/Kero 74.23 -0.97 -1.29 75.20 <JET-SIN> Jet/Kero Diff 0.40 -0.02 -4.76 0.42 <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 Vinay Dwivedi)

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