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Asian Product Markets and Refinery Operations

Source: OPEC 11/15/2013, Location: Asia

The Asian market showed mixed performance during October as the light distillates crack spread continued to weaken, with plentiful supplies weighing on margins for gasoline and naphtha, while tight supplies and firm demand supported the middle distillate and fuel oil market.

At the top of the barrel, the Singapore gasoline crack continued to be bearish due to plentiful supplies and thin regional demand.

Gasoline’s premium to light crude fell as supply outweighed demand. Gasoline volumes moved to the Asia-Pacific from Europe, despite the apparently unattractive economic situation, and additional pressure came from elevated exports from South Korea and China to Singapore, thus contributing to an uptick in gasoline stocks.

While some temporary upside momentum coming from buying interest was observed from Pakistan and India, it had a limited effect, as slower demand from key regional importers Indonesia and Vietnam offset the potential rise.

The gasoline crack spread against Dubai crude in Singapore lost $1 to average $5/b in October.

The Asian naphtha market continued weak, and the crack showed little movement over the month, as a supply overhang and cracker maintenance continued weighing on the naphtha market. The maintenance season is taking its toll on naphtha imports from several top Asian buyers such as Taiwan, South Korea and Singapore.

Looking ahead, some support could emerge in coming weeks as increasing Asian LPG prices will cause regional petrochemical firms to begin to seasonally switch back to cracking naphtha. However, naphtha arbitrage volumes from the West to the East are expected to pick up over November as the winding down of the European refinery maintenance season boosts supplies capping the upside to naphtha cracks from seasonally higher demand.

At the middle of the barrel, the gasoil crack continued to be relatively healthy, recovering part of the ground it lost last month as the market became tight with a spate of refinery shutdowns in India and the Middle East supporting the prompt gasoil market. The gasoil crack improved slightly over October on the back of lower supplies from Northeast Asia, tightened by a heavy turnaround schedule, and elevated demand from South Korea, Africa, Indonesia and the Middle East.

Middle Eastern gasoil imports recorded in 3Q13 continued increasing as the Middle East has been stockpiling. Additional demand emerged from Saudi Arabia, where the 305,000 b/d Jubail refinery is undergoing maintenance; the new 400,000 b/d refinery is expected to produce mainly 10ppm diesel by the end of this year.

Support came additionally from increasing buying interest on behalf of Indonesia, Vietnam and Sri Lanka. South Africa also sought spot Asian supplies, as refinery maintenance got underway.

The gasoil crack spread in Singapore against Dubai showed a gain of more than $1 to average around $18.5/b in October.

At the bottom of the barrel, cracks recovered ground lost during the last months, with higher bunker prices being supported by an improving demand picture.

Bunker sales in Singapore rebounded in September, jumping almost 6.6% m-o-m on the back of a likely increase in shipping activity throughout the region, specifically in China. In addition, a temporary shortage of cutter stocks boosted low-viscosity fuel oil premiums to higher viscosity grades.

Additional support came from the increasing demand of South Korea’s power utility sector and China´s teapot refineries.

The fuel oil crack spread in Singapore against Dubai showed a recovery of almost $3 to average minus $12/b in October.

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