SINGAPORE : Asian refining margins for gasoil, which jumped to their strongest levels on record on Monday, may start cooling off as early as next month as refiners ramp up output, while the upcoming monsoon season could dampen demand, traders and analysts said.
Refining margins for the benchmark 10 ppm gasoil in Singapore, which have soared nearly 63 per cent in the last two weeks, hit $55.77 a barrel over Dubai crude on Monday, an all-time high according to Refinitiv data that goes back to 2014. Gasoil is currently the top money spinner for Asian refineries.
The remarkable rise in gasoil profits is encouraging refiners from South Korea to India to prioritize output of the industrial fuel and step up exports to Asia and also Europe, which is seeking to replace Russian supplies ahead of an European Union embargo to phase out Russian oil products in eight months, the sources said.
(Graphic on, Asia gasoil refining margins surge to new all-time highs: https://fingfx.thomsonreuters.com/gfx/ce/egpbkwxjovq/SingaporeGasoilCracksJune2022.png)
China’s demand is also set to rebound on easing COVID-19 curbs, they said.
“Eased restrictions in China will no doubt spur a demand recovery. On the other hand, downside (for demand) is expected from the monsoon season happening in some countries, on top of high diesel prices denting consumption,” said Sandy Kwa, a senior analyst at Boston Consulting Group.
Arbitrage flows to the West, however, would provide a cushion and prevent any steep slide for the regional gasoil cracks going forward, market watchers said.
Jane Xie, a senior oil analyst at analytics firm Kpler, said Europe could pull in more supplies from the Middle East and India, intensifying competition between Asia and Europe for these barrels.
As a result, Kpler expects the 10 ppm gasoil cracks to average around $24-$26 a barrel in the third quarter, and slipping to about $20-$21 a barrel in the fourth quarter.
“We are expecting Q3 to have more supplies in the East of Suez, and Asia in general,” a Singapore-based gasoil trader said.
“But we should see more workable arb to the West during the third quarter,” he said, adding that barrels from the Arab Gulf and west coast of India will be the majority heading to Europe.
(Graphic on, Key Singapore oil and fuel prices in U.S. dollars per barrel: https://fingfx.thomsonreuters.com/gfx/ce/jnpwezdjqpw/Singaporegasoilvsfuels.png)
Asia’s diesel exports stood at 8.51 million tonnes in May, 1.2 per cent higher from April, Refinitiv Oil Research assessments showed.
“With refiners in the West prioritising gasoline over diesel to meet seasonal demand, diesel supplies are expected to remain tight at a time when refiners are already operating their refineries near capacity,” Serena Huang, senior market analyst at oil analytics firm Vortexa, said.
“It’s not a question of whether the East-West arbitrage will remain open, but rather, how wide it is and how much flows will be heading to the West,” she added.
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