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Asian Product Markets and Refinery Operations

Source: OPEC 9/23/2013, Location: Asia

The Asian market weakened sharply in August as cracks fell across all parts of the barrel, with gasoline exhibiting the worst performance as expectations of lower seasonal demand weighed on the market amid increasing supplies. Additionally, the bottom of the barrel crack spread continued its downward trend caused by weaker demand in the bunker and power sectors.

The gasoline crack plummeted in August on the back of rising supplies, causing an increase in stocks. This weighed on the gasoline market amid expectations of lower seasonal demand as the key importing countries have begun to cut imports after seasonal domestic consumption passed its peak in early August.

Supplies have been improving during the last weeks in the Asian market with a seasonal uptick in Japanese gasoline yields boosting output. Meanwhile, Taiwan’s gasoline exports have risen substantially, and Chinese exports to Singapore have been on the rise.

Additional pressure came from the expected spot cargoes to be offered from the Mideast Gulf in coming weeks.

The gasoline crack spread against Dubai crude in Singapore plummeted, losing more than $7 to average $8/b in August. The Asian naphtha market continues to be weak, and the crack showed little movement over the month, as growing supplies and cracker maintenance weighed on the naphtha market.

Higher volumes out of the Middle East were a pressuring factor for petrochemical feedstock with higher-than-usual spot volumes from Kuwait.

Additionally, the cracker maintenance season will reach its peak in September and early October with several crackers expected to be offline in Japan, South Korea and Taiwan.

At the middle of the barrel, the gasoil crack continued relatively healthy in August, however it showed a slight loss last month as the market continued to be pressured by the passing of peak demand season, ample regional supplies and growing Indian exports.

Gasoil´s falling seasonal demand from key importer Indonesia was partially offset by some demand seen from South Africa, Sri Lanka and Vietnam. This allowed losses to be capped, mainly due to support coming from the African market remaining strong with several firms moving to secure cargoes for September and October delivery. Additionally, trading firms booked cargoes from Northeast Asia to Europe amid more favourable arbitrage economics.

The gasoil crack spread in Singapore against Dubai lost almost $1.5 to average around $19/b in August.

Looking forward, gasoil demand could continue to be impacted by the rainy season in the region, taking into consideration that in India the monsoon season typically dents demand from the power and agriculture sectors.

At the bottom of the barrel, cracks continued to be pressured as the region continued to suffer from weak power and bunker demand, while residual stocks in Singapore kept rising on ample supplies, hitting the high level above 21 mb, lifted by exports from India where the monsoon season has dampened demand for fuel oil utilized for power generation.

Additionally, pressure came from weakening demand from the Japanese power sector as the major power utilities in the country are reducing fuel oil intake and new gas-fired units are being pushed forward as Japan struggles to cope with its reduction in nuclear power output.

The fuel oil crack spread in Singapore against Dubai continued to show a sharp loss of more than $3 to average minus $14/b in August.

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