Asian refineries increased supplies after finishing maintenance and poor light distillate demand caused cracking margins to lose momentum. This was despite the drop in crude oil prices and the continued strengthening seen in the middle and at the bottom of the barrel.
The gasoline crack continued losing momentum in June, mainly due to continued rising supplies, particularly from India and Taiwan, with lower demand exerting pressure on the gasoline crack, causing it to fall to the lowest level this year, despite the drop in Dubai crude prices. Regional demand failed to give support, as a result of the prospects of lower demand from Indonesia, as Asia΄s biggest gasoline-importer reduced gasoline imports by almost 9% m-o-m to a six-month low. Additionally, Indian consumers have increasingly been shifting from gasoline to subsidized diesel. On the other hand, higher Singapore onshore light distillate stocks were also exerting pressure.
The gasoline crack spread against Dubai crude in Singapore retreated from an average of $11/b in May to around $7b in June. Naphtha cracks continued falling to the lowest level seen this year (minus $13/b), as a result of increasing pressure, because of high availability in the region at a time of falling demand. The main bearish factors were persistently low demand from the petrochemical sector, as poor petrochemical margins forced Asia-Pacific crackers to cut throughputs. On the other hand, increasing supplies from the West, India and Middle East contributed to the collapse of the Asian naphtha market.
Middle distillates continued maintaining healthy crack levels, with fundamentals remaining largely stable in a quite well-balanced gasoil market. Middle distillate cracks remained strong over the month, finding support from increasing regional demand from Australia, Sri Lanka and Vietnam, as refiners secured volumes to cover for lost output from plants going into maintenance. This stronger requirement offset the increase on the supply side from refineries returning from maintenance in Japan and South Korea, keeping the market relatively well balanced. Additional support came from the falling trend for Singapore onshore middle distillate stocks during the month.
The gasoil crack spread in Singapore against Dubai averaged around $18/b in June, unchanged from the level seen the previous month. Singapore fuel oil cracks continued to strengthen, mainly on the back of healthy regional demand for power-generation, as well as bunker fuel.
The robust South Korean utility demand continued to firm, because of maintenance at nuclear power stations, and Singapore bunker fuel sales hit the highest monthly volume in May. This stronger demand could offset the reduction in the processing requirements of independent Chinese refineries. On the other hand, the arbitrage inflows into Asia-Pacific were less than the previous month, lending additional support to the market. The fuel oil crack spread in Singapore against Dubai remained at around an average of minus $2.7/b in June, a similar level to the previous month.