 Cracking margins lost momentum as Asian refineries returned from maintenance along with poor light distillate demand, despite the strength seen in the middle and bottom of the barrel. The gasoline crack failed to retain last month’s rise and lost momentum due to supply side pressure. Chinese, South Korean and Indian gasoline exports began to increase, in line with the end of local refinery maintenance. Although these increasing supplies were counterbalanced to some extent by healthy regional demand — specifically from Indonesia, Pakistan and Vietnam the gasoline crack fell, given the bearish Asian light distillates market. The gasoline crack spread against Dubai crude in Singapore retreated from an average of $14/b in April to around $11/b in May.
Naphtha cracks plummeted to their lowest levels seen this year — minus $10/b — as a result of increasing pressure from high availability in the region and falling demand. The main bearish factors have been the petrochemical sector, which has been considering implementing run cuts due to the lower demand for plastics, LPG having become the cheaper feedstock, which has impacted naphtha demand, and the overall poor economic outlook. Unplanned refinery shutdowns offset the additional supply coming from several refineries returning from maintenance, thus keeping the middle distillate market well balanced. The return of several refineries from maintenance in Japan, India and South Korea has kept gasoil supplies on the rise. However, the market has remained relatively tight, boosted by an unexpected shutdown of a Vietnamese refinery and healthy, regional demand, which has remained supportive, especially from Pakistan, Vietnam, India and Sri Lanka.
The gasoil crack spread in Singapore against Dubai averaged around $18/b in May, remaining unchanged from the level seen during the previous month. The Singapore fuel oil crack strengthened, mainly on the back of healthy regional demand for power generation as well as bunker fuel. The requirements from South Korean utilities were particularly high and are expected to continue in the short term due to maintenance at nuclear power plants. Japanese utilities also added support as the country’s fuel oil requirements increased to compensate for the loss of nuclear capacity. Higher inflow volumes arriving from the Black Sea have been offset by healthy bunker demand. The fuel oil crack spread in Singapore against Dubai increased by $1 to an average of around minus $2.5/b in May.
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