Asian Product Markets and Refinery Operations - December 2011

Source: OPEC 12/31/2011, Location: Asia

Asian cracking margins plummeted over the month, as bearish sentiment in the light distillates market made the crack slump to the lowest level in two years. The Asian naphtha market continued to be affected by disappointing demand from the petrochemical sector, due to the economic situation across the world, while supplies are seen plentiful, mainly from India. Additional bearish sentiment came from the unplanned shutdown of the VCM (vinyl chloride monomer) plant in Japan, due to a fire, and plans to reduce runs in several cracker complexes, some of which are running at only 80% of capacity. The naphtha crack fell, losing more than $5/b over the month, to the lowest level seen in two years minus $14/b a sign confirming the slowdown in world economic growth.

Weaker seasonal gasoline demand amid increasing supplies as refineries in Taiwan and Singapore returned from unscheduled shutdowns and Indian refineries came back on line after completing maintenance, exerted such pressure on the gasoline market that the gasoline crack plummeted to the lowest level seen in two years and has crossed to the negative side since mid-November. The gasoline crack spread against Dubai crude in Singapore showed a sharp loss of $13, to average around $3/b in November, from an average of $16/b during the previous month.

The middle distillates market continued showing a positive performance on the back of tightening supplies and strong regional demand amid falling stocks. The supply side received support from lower exports from Japan and South Korea as they focused on maximizing kerosene production and reduced inflows from the West. In addition, regional demand was healthy; mainly from China replenishing falling inventories to prevent a winter shortage, due to higher power generation requirements.

The gasoil crack spread in Singapore against Dubai remained strong, increasing on average by $2.4 from the previous month to stand at $21.9/b. At the bottom of the barrel, fuel oil cracks showed a gain of 30¢ to stand at a premium of $2.0/b over Dubai, the highest level in two years, supported by a lack of onspecification fuel oil volumes coming from the west, which, along with lower inflows from the Middle East, has kept the Asian market relatively tight. Additional support came from stronger regional demand, mainly from Pakistan and Japan, on seasonal requirements for power generation utilities.


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