The Cash Differential for FOB Singapore 0.5% Sulfur Gasoil Fell to Over a Three-Year Low

The cash differential for FOB Singapore 0.5% sulfur gasoil fell to more than a three-year low Wednesday, amid ample supply in the region and weak buying appetite for the grade ahead of a change in sulfur specifications for the Singapore benchmark gasoil, traders said Thursday. 

The differential for the grade was assessed at a discount of $1.06/barrel to Mean of Platts Singapore Gasoil assessments at Asian close Wednesday, down 22 cents/b from Monday. The differential was last any lower on October 9, 2009, when it finished at a discount of $1.30/b. 

The cash differential for gasoil represents the price buyers are willing to pay for the automotive and power generation feedstock, below or above benchmark prices published around the day a cargo loads. Falling physical differentials indicate a weak appetite from buyers and are typically accompanied by softness in the structure of the forward curve. 

There were mixed views for the weaker buying appetite seen. 

Some traders said buyers were shunning the 0.5% sulfur grade as it will cease to be the benchmark grade in Singapore after January 2. Platts announced in 2011 that the sulfur specification of its benchmark FOB Singapore/Arab Gulf Gasoil assessment would be reduced from the current 5,000 ppm to 500 ppm from January 2, 2013. 

But others said the weakness was perceptible across the grades and not just for the 0.5% sulfur grade. "If you look at recent spot deals around the region, they have been concluded at much lower levels compared with the 2013 term differentials. But this is not just for the high sulfur gasoil grade but also for the other gasoil grades," a Singapore-based trader said. CHINA AND INDIA SEE HIGHER GASOIL EXPORTS 

Ample supply, especially from China and India, had further weakened the market. 

Total gasoil exports from the two Asian giants were seen to surge 33-47%, or 2 million-2.5 million mt, year on year in the fourth quarter of 2012, up from 1.5 million-1.7 million mt in Q4 2011, amid a gloomy global economic outlook and increased refining capacity. 

Chinese refiner West Pacific Petrochemical Corp., or Wepec, has already sold its third spot parcel of 40,000 mt of 0.2% sulfur gasoil for loading in January, Platts reported earlier. Wepec typically exports gasoline, naphtha, jet fuel and kerosene cargoes, but over November-December started exporting gasoil as well due to lower domestic demand. 

Gasoil exports from China are expected to hover around 300,000 mt/month till the first quarter of 2013, a trade source with knowledge of the country's gasoil market said. "January gasoil exports will likely be at similar levels as seen in the fourth quarter of 2012," the source added. 

Indian gasoil exports were also climbing, with Essar oil becoming a regular exporter since September 2012. The private refiner has been exporting as much as 200,000-250,000 mt of 500 ppm sulfur gasoil each month since September following a refining capacity expansion. 

Reflecting surging supply, middle distillate stocks in Singapore rose by 296,000 barrels week on week to 10.155 million barrels for the week ended December 19, official data from International Enterprise Singapore showed last Thursday. The data for this week due to be out later Thursday, is expected to show a similar increase in stocks, traders have said. "There has been limited outlets for gasoil at the moment," another source said. "Supplies are growing but demand is bad."