The Asian gasoil market saw a sharp reversal in fortunes this month as higher exports from India and North Asia and weakness in Europe, despite the cold season, clamped shut arbitrage outflows from Asia, resulting in a buildup in supply within the region, market sources said Thursday.
The benchmark FOB Singapore 500 ppm sulfur gasoil slumped into negative territory to be assessed at minus 25 cents/b at the Asian close Wednesday after hitting a one-and-a-half-year peak of plus 64 cents/b on December 1, Platts data showed.
The differential was last higher on May 29, 2014 at plus 82 cents/b.
At minus 25 cents/b, the cash differential was at its lowest in more than two months. It was at plus 3 cents/b the day before, and was last lower on October 5 at minus 28 cents/b, data showed.
The deluge of 10 ppm sulfur gasoil cargoes in Asia, thanks to a shut arbitrage from India and the Persian Gulf to Europe forced cargo-holders to sell 10 ppm into 500 ppm sulfur gasoil homes, traders said, thereby exerting downward pressure on cash differentials of the low sulfur grade.
"The thing is, the EFS [is] too strong; AG/West Coast India/Red Sea 10 ppm [sulfur gasoil cargoes] cannot move to Europe, [so] all Middle East 10 ppm [cargoes] go [into] 500 ppm demand, and it will push 500 ppm cargoes to Singapore," said a Singapore-based trader.
The gasoil Exchange of Futures for Swaps for January hit a 2015-peak of minus $3.03/mt on December 14, before sliding to minus $8.21/mt Wednesday. The spread was last higher on December 31, 2014, at plus $3.98/mt.
OVERSUPPLY IN EUROPE, REFINERY RESTARTS
Europe has been seeing a chronic oversupply driven by ample arbitrage volumes from the US, high refinery runs thanks to lucrative gasoline margins, and lackluster demand because of unseasonably warm weather across much of Europe. This has led to swelling inventories resulting in a very strong East-West spread.
Heaping more bearish pressure on the Asian market was higher exports from India and North Asia as refineries restart from turnarounds and maximize their crude throughput, incentivized by lower crude prices and glowing gasoline margins, traders said.
In India, state-owned Mangalore Refinery and Petrochemicals Ltd. has sold 130,000 mt of 500 ppm high sulfur diesel in two clips of 65,000 mt each for January loading on the spot market, and is offering another 65,000 mt of similar grade diesel for loading over February 1-3 from New Mangalore in a tender closing December 22. MRPL did not export any diesel for December loading.
The refiner is not a regular exporter of diesel, and exports only when there is a surplus after having met all domestic requirements.
Private refiner Essar Oil has so far sold 140,000 mt of spot 500 ppm sulfur high speed diesel for January loading. The refiner's December spot exports totalled 140,000 mt, up from November's 70,000 mt.
In Taiwan, private refiner Formosa Petrochemicals plans to export 23 MR-sized cargoes of gasoil for January loading, up from its usual export program of 20 cargoes per month as the refiner is maximizing runs on the back of attractive gasoline margins, a source said.
