Asia ultra-low-sulfur gasoil refining margins sink to near 3-yr low
Asia's ultra low-sulfur gasoil refining margins collapsed to the lowest in nearly three years, pricing data from LSEG showed on Tuesday, as excess supply and persistently soft derivative markets depressed prices.
The margin for 10-ppm gasoil, a fuel used in transportation and industries, slipped to slightly below $11/bbl, down from $11.50/bbl a day earlier, the data showed. This is the lowest since Dec. 1, 2021, according to LSEG data.
The decline was further exacerbated by the strength in crude prices, in comparison to gasoil—given that derivative prices have been holding steady the past two trading sessions, one Singapore-based trade source said, adding that there is still "more supply than demand" in the market now.
Derivative markets barely moved from the previous trading session, with paper swap prices for October and November just $0.20/bbl higher day on day, LSEG data showed. Cracks last fell to an 18-month low in end-August.
Supplies are still considered sufficient for now, despite the upcoming maintenance season, given that swing suppliers such as India can still pivot their cargoes east for September, a second Singapore-based trade source said.
Around 2 MMbbl of India-origin diesel/gasoil is still expected to flow into Asia for September, shiptracking data from LSEG and Kpler showed, though trade flows to Europe will also rise to a five-month high in the same month.
However, some analysts are expecting the refining margins to rebound soon given that market fundamentals should soon improve from lower refinery production due to maintenance and run cuts—though they are cautious about the market's upside.
"We believe Singapore gasoil cracks are oversold...the market is undervaluing the stockdraws that will take place in September and throughout October," said FGE analysts in a client note dated Sept. 13.
The net short positions in the ICE derivative markets are mainly driving the market weakness, FGE analysts said in a separate note dated Sept. 16, adding that these positions are at their largest in the past 13 yr.
"The stock situation (in OECD countres) this year is not nearly as bearish as in 2016, both in terms of supply/demand balance and outright inventory level," they added.
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