Asia Distillates-Gasoil cracks dive to lowest seasonal levels in 7 years
SINGAPORE, March 4 (Reuters) - Asian refining margins for gasoil have plunged to their lowest seasonal levels in the last seven years, weighed down by a supply glut amid muted industrial activity as the region grapples with the coronavirus epidemic.
The gasoil market has come under pressure as industrial activity took an unprecedented hit from the virus outbreak in China that has brought one of the world's largest economies to a halt. An earlier anticipated demand boost for marine gasoil (MGO) following a switch to cleaner marine fuels this year never quite materialized as ship-operators preferred very-low sulphur fuel oil (VLSFO) over MGO for better calorific properties and other technical advantages. Instead of strengthening as expected, gasoil profits have slumped 44% since the International Maritime Organization (IMO) banned ships from using fuels with sulphur content above 0.5%, effective Jan. 1, while bunkering demand crumpled under virus-led industrial restrictions and port delays.
Refining margins for gasoil with 10 ppm sulphur content edged higher to $9.03 per barrel over Dubai crude during Asian trading hours on Wednesday, up from $8.96 per barrel on Tuesday. Singapore gasoil prices <GO10-SIN> have shed about 27% this year, while refining profit margins or cracks for the benchmark gasoil grade collapsed to a near four-year low of $7.79 per barrel over Dubai crude last week, Refinitiv Eikon showed.
"The gasoil market has been under tremendous pressure from last year due to a gloomy global economy and subdued industrial activities. On top of this, IMO 2020 did not offer the expected support," said Sri Paravaikkarasu, director for Asia oil at consultancy FGE. "As a final nail in the coffin, the coronavirus outbreak has crippled industrial activities in China... More exports will be seen from China. With this, we could see further downtrend in gasoil cracks." China has ramped up fuel exports to compensate for losses to domestic demand amid the outbreak, having been unable to prevent a surplus in the world's second-largest oil consumer even with cutbacks in its refining output.
Asia's gasoil length should increase by 230,000 barrels per day over the second quarter year-on-year as refineries start to restore runs, according to FGE estimates. Cash premiums for 10 ppm gasoil <GO10-SIN-DIF> dropped to 2 cents per barrel to Singapore quotes on Wednesday from 24 cents per barrel in the previous session. Meanwhile, cash differentials for jet fuel widened their discounts to 32 cents per barrel to Singapore quotes on Wednesday, compared with a discount of 19 cents per barrel on Tuesday.
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