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Asian Product Markets and Refinery Operations - August 2012

Source: OPEC 9/1/2012, Location: Asia

Asian refineries reduced supplies due to maintenance and additional unscheduled shutdowns, tightening the market amid strong distillate demand and causing the cracking margins to recover momentum, despite the rise in crude oil prices. The only product to weaken was fuel oil, due to over-supply in the region and lower demand.

The gasoline crack recovered the ground lost during June, as sentiment was lifted by healthy regional demand, mainly from Asian importers: Indonesia´s Pertamina had higher requirements; in Pakistan, supply shortages in natural gas contributed to higher gasoline imports; and Sri Lanka had to cover domestic shortfalls during maintenance at its Kelaniya refinery. Additional support came from the supply side, due to the unexpected Chiba refinery shut-down and the closure of the Mizushima refinery in Japan, while Thailand was expected to import cargoes following the Bangkok refinery shut-down.

The gasoline crack spread against Dubai crude in Singapore recovered $2 to average $11/b in July. Naphtha cracks developed similarly, recovering some ground, since demand side fundamentals were supportive, with firmer buying interest from South Korea because of higher petrochemical demand. Supplies became tighter, with naphtha exports from India decreasing, as Indian refiners were directing naphtha to the more lucrative gasoline pool instead.

Middle distillates continued maintaining healthy crack levels, with fundamentals remaining largely stable in a relatively tight gasoil market. Support for the gasoil crack stemmed from increased buying interest from the Philippines, Vietnam, India and Sri Lanka. Supply side fundamentals also provided support, with refinery maintenance at the Shell refinery in Singapore contributing to lower gasoil volumes, along with another refinery shutdown in the region causing the market to tighten and Singapore middle distillate stocks to fall. Further support also came from higher Saudi Arabian import requirements.

The gasoil crack spread in Singapore against Dubai averaged around $21/b in July, gaining $1.4 from the previous month. At the bottom of the barrel, the fuel oil crack experienced a loss, most likely due to lower regional demand. Limited demand from the bunker sector and independent Chinese refiners weighed on the fuel oil market, offsetting buying interest from utilities in South Korea and Pakistan, while Japanese oil imports fell. Meanwhile, supplies remained ample in the region, with rising arbitrage arrivals contributing to the widening discount on Singapore’s fuel oil. The fuel oil crack spread in Singapore against Dubai dropped $2 to average minus $3.5/b in July.

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