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Asian Product Markets and Refinery Operations

Source: OPEC 7/21/2013, Location: Asia

The Asian market continued to gain ground over June, as the cracks strengthened across all parts of the barrel. Seasonal demand increased, amid some supply limitations due to refinery outages in the region allowing product cracks to rebound from their lows witnessed in previous months.

The gasoline crack continued to recover ground in June on the back of firmer demand and tight supply, causing the stock in Singapore to remain low.

The Asian gasoline market became bullish, and fundamentals have been quite healthy, with strong demand from India to cover a domestic shortfall and lower regional exports, as shutdowns at gasoline making units in Taiwan cut some volumes and fuelled tightening sentiment.

Additionally, imports have also been rising in Sri Lanka, Malaysia, Pakistan and the Middle East, with the latter also looking to import gasoline to meet higher seasonal demand.

The gasoline crack strengthened, supported by the demand side as well as low stocks in Singapore Onshore light distillate as they still remain relatively low at slightly below nine million barrels, almost 10% lower than the previous month.

The gasoline crack spread against Dubai crude in Singapore showed a sharp recovery of more than $4 to average $14/b in June.

The Asian naphtha market continues to be weak as supply-side pressure continues to weigh, with the Asian naphtha supplies remaining ample due to a lull in refinery maintenance, elevated arbitrage arrivals from the West, substantial imports from Europe and the US persisting since the start of this year.

At the middle of the barrel, the gas oil crack continued to extend gains over June on the back of higher seasonal demand supporting fundamentals as the run-up to summer and Ramadan is boosting import requirements in the region.

The improving demand situation has also helped to draw down middle distillate stocks in Singapore, which last stood at an almost one-year low.

Imports have strengthened across the region with India, Sri Lanka, Vietnam and the Philippines all upping their import requirements during the last weeks.

Support was also seen stemming from Saudi Arabia, importing additional gas oil volumes for power generation to meet higher electricity demand over the summer months. Meanwhile, the recent cut in Chinese diesel prices could also add a short-term lift to diesel demand, which has so far been below-average.

The gasoil crack spread in Singapore against Dubai gained more than $2 to average around $19/b in June. At the bottom of the barrel, fuel oil cracks continued strengthening, mostly due to increasing demand from South Korea for power generation in order to offset lower nuclear power output.

Additional support came from the expectation of lower Western arbitrage arrivals in Asia over summer due to higher seasonal demand in the Mediterranean, and the beginning of the summer cooling season in the Middle East. The fuel oil crack spread in Singapore against Dubai gained more than $1 to average minus $5/b in June.

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