The Asian market retreated under the pressure of increasing supplies, easing the tight situation seen in previous months, and the cracks weakened across the barrel — with the exception of naphtha, which remained healthy on the back of stronger petrochemical demand, despite increasing inflows into the region.
At the top the barrel, gasoline witnessed a decline, with the market under pressure from ample supplies in the region and the expectations of higher gasoline exports from Taiwan. However, the downside was limited by strong regional demand, mainly from Indonesia – due to the heavy turnaround schedule – the Philippines and Malaysia as well as India, where gasoline consumption improved significantly to a four-month high. In South Korean, gasoline demand declined.
In addition, Singapore’s onshore light distillate stocks posted a rise, although stocks remained below the five-year average.
These bearish factors caused gasoline to lose some ground, and the gasoline crackspread against Dubai crude in Singapore showed a loss of $2 to average $9/b in November.
Supplies are expected to remain ample in the region, with increased volumes likely to be available from Taiwan´s CPC refinery due to the new unit in operation, although this could be offset by an unplanned shutdown in a desulphurization unit at the Formosa Complex. On the other hand, demand could increase in Vietnam, following the cutback in domestic gasoline prices announced by the Ministry of Finance.
Naphtha kept the ground gained during the last months and continued to show a positive development, with sentiment remaining healthy in the region.
The naphtha crack remained largely steady, despite expectations of elevated Western arbitrage arrivals next month. Despite this, demand remained firm, particularly from Taiwan, with high petrochemical margins.
Looking forward, some support is likely to stem from Indonesia’s import requirements during the maintenance of that country´s refineries and from the firm demand from the petrochemical sector — although this could be offset by maintenance at the naphtha cracker of Japan´s Kawasaki complex and the rising supplies from the Middle East, which will weigh on the market.
Middle distillates continued to exhibit relatively healthy crack levels, although they lost part of their strength over the month, on the back of pressure from re-emerging higher supplies, with a lack of viable arbitrage outlets to Europe.
Cracks in the middle of the barrel lost ground, due mainly to rising supplies, in line with significantly lower refinery maintenance during the month. This was already reflected in an increase in Singapore’s middle distillate stocks.
Gasoil demand limited losses and remained healthy in Sri Lanka, the Philippines and Vietnam. This was also due to higher exports from Asia-Pacific to Australia and South Africa.
The gasoil crack-spread in Singapore against Dubai averaged around $19/b in November, a loss of $2 from the previous month.
Looking forward, the market could receive support from a potential increase in diesel demand in China, given the gradually improving activity in the manufacturing sector, with the PMI Manufacturing Index rising for the second consecutive month.
At the bottom of the barrel, the fuel oil crack continued its downward trend for the fifth consecutive month. Despite some demand from Pakistan and South Korean utilities, supply-side factors continued to put pressure on fundamentals with arbitrage arrivals from the West into Asia at over five million tonnes, up by almost 600,000 tonnes m-o-m. Chinese fuel oil imports have markedly contracted in recent months, and could wane over the coming period, as the recent decline in retail prices for motor fuels potentially has an impact on margins.
The fuel oil crack-spread in Singapore against Dubai dropped by almost $4 to average –$12.6/b in November. Looking ahead, some support may stem from Japan in line with higher seasonal fuel oil requirements from utilities during the winter months; however, the over-supply will keep putting pressure on the market.