Asian markets led to an easing of the tight situation, with increasing supplies causing cracks to retreat, despite healthy demand. Gasoline and fuel oil weakened, while naphtha and gasoil remained relatively stable.
At the top the barrel, gasoline lost the ground gained last month, while naphtha continued the positive trend on the back of stronger demand in the region. The gasoline crack retreated over the month as the tight market eased, with steady exports from India keeping the market sufficiently supplied and additional availability from the Taiwanese refiner CPC Corp. catalytic unit in the Talin refinery back on line. Another supply source consisted of the additional volumes available from the Mailiao refinery, which was increasing runs to over 90%. Gasoline crack spreads weakened on plentiful supplies, which outweighed the healthy regional demand, due mainly to buying interest from Indonesia, Sri Lanka and Vietnam.
In addition, arbitrage exports were limited, despite production problems on the US West Coast. The gasoline crack spread against Dubai crude in Singapore showed a sharp loss of $4 to average $11/b in September. The naphtha market continued to show a positive development, with its crack rising for a fourth consecutive month as sentiment remained healthy. Fundamentals were supported by ongoing robust demand driven by improving petrochemical margins and lower regional exports, with South Korea increasing operating rates at its main naphtha cracker to full capacity.
Middle distillates continued to exhibit healthy crack levels, with fundamentals remaining largely stable in a relatively tight gasoil market. Market sentiment was particularly positive as supplies remained tight in the region at a time of refinery maintenance and shutdowns, while demand continued strong. The supply side was putting pressure on the market due to the increasing availability from India. The heavy rainfall in the country made more hydropower available, thus reducing the use of gasoil for oil-fired power-generation. Furthermore, expectations of higher supplies becoming available from Pulau Bukom refinery in Singapore put pressure on the market. However, this pressure was partly counterbalanced by buying interest from Vietnam, Sri Lanka, Indonesia and Australia. Additional backing came from the falling Singapore onshore middle distillate stocks. The gasoil crack spread in Singapore against Dubai averaged around $22/b in September, losing 70¢ from the previous month.
Looking forward, some support may come from Australia and China as gasoil/diesel requirements are expected to increase with the harvesting season. However, this could be offset if the demand in India were affected by the increase in diesel prices, since subsidies for the domestic market have been reduced. At the bottom of the barrel, the fuel oil crack continued to lose ground in September, most likely due to higher inflows from the West into the region, amid limited demand. Moreover, exports from the Middle East were expected to rise, as seasonal demand from the power-generation sector declined.
Despite Chinese fuel oil demand remaining lacklustre, the demand side was supported by healthy demand from Pakistan, which was experiencing a natural gas shortage. The loss was capped by expectations of lower oil shipments to the Asia-Pacific from the Amuay refinery in Venezuela for the coming months, although PDVSA has been supplying fuel oil from storage so far. The fuel oil crack spread in Singapore against Dubai dropped by $1 to average minus $6/b in September.