Asian Product Markets and Refinery Operations

Source: OPEC 6/25/2013, Location: Asia

The Asian market continued to be bearish, although cracks stopped falling on the back of increasing regional demand amid some supply limitations due to refinery outages in the region. This allowed product cracks to slightly rebound from their lows.

The gasoline crack stopped moving downward, slightly recovering in May on the back of firmer demand and tight supply, causing a stock draw in Singapore.

The Asian gasoline market was relatively balanced over the reporting week, with emerging demand from India, Sri Lanka and Indonesia countering the improving regional supply situation following maintenance season. Higher seasonal requirements from India supported the gasoline market, while several unscheduled refinery outages in recent weeks have boosted import requirements.

The gasoline crack spread against Dubai crude in Singapore recovered by $1 to average $10/b in May. The Asian naphtha market continues its struggle to find positive supporting factors, with the prospect of growing supplies weighing heavily, although the weak naphtha crack stopped falling in May, due to the buying interest of some regional petrochemical players.

However, although demand remains stable to firm, naphtha supplies in Asia continue to be ample due to high inflows from the West, while a weaker outlook for Asian petrochemical demand added to concerns. One of the region´s key spot buyers, Formosa Petrochemical, lowered run rates at its three naphtha crackers in Taiwan.

At the middle of the barrel, the gasoil crack stopped falling in a relatively balanced market. The supply side exerted pressure due to some continuing gasoil exports from China; although these are expected to fall soon. However exports from South Korea and Taiwan remained stable, as refineries returned from maintenance.

On the other hand, the arbitrage to Europe remained marginal, thus capping potential Asian diesel crack gains. Supply side pressure eased temporarily, as exports from India dropped this month due to a seasonal peak in power consumption, amid shorter supply because of refinery disruption in the region.

Asian gasoil crack received some demand support from Vietnam, the Philippines and Sri Lanka, as well as from a decline of stocks in Singapore. Additional support came from stronger demand in the Middle East, where the requirement for gasoil rises in the summer to meet higher power consumption. This contributed to market balance and offset pressure from the supply side.

The gasoil crack spread in Singapore against Dubai remained around $16/b in May, a level similar to that of the previous month.

At the bottom of the barrel, fuel oil cracks continued strengthening mostly due to increasing demand from South Korea for power generation, after three more nuclear reactors were shut down in that country. Additional support came from the expectation of tightening supplies over the coming weeks due to lower arbitrage arrivals from the West, higher seasonal demand in the Mediterranean for fuel oil in the shipping and power sectors, and the beginning of the summer cooling season in the Middle East. The fuel oil crack spread in Singapore against Dubai gained 20˘ to average minus $7/b in May.


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