Asian market Product Markets and Refinery Operations - April 2016

The Asian market exhibited a slight recovery in March on the back of stronger regional demand and a sentiment of tightening, fueled by the start of refinery maintenance in the region. However, the additional uptick has been limited by the high inventories in Singapore, which has pressured the market.

The gasoline market partially recovered the ground lost in the previous month on the back of the bullish sentiment fueled by the maintenance season, which has started to tighten the gasoline balance in India and South Korea. Meanwhile, the pressure coming from a lengthening Chinese gasoline balance is expected to ease with a reduction in refinery throughputs. Additional support has come from higher regional demand being reported from India, Thailand and China.

Meanwhile, gasoline demand remained seasonally strong in the Middle East and the Red Sea. The gasoline crack spread against Oman crude in Singapore averaged around $13/b in March, gaining more than $2 over the previous month’s level. The Singapore naphtha crack continued its downward trend, losing around $1/b over the month and impacted by the higher switching to LPG feedstock and the seasonal peaking in steam cracker maintenance within the region. Further losses were avoided by the lower western arbitrage.

At the middle of the barrel, the gasoil market continued under supply pressure with crack spreads remaining at the low level reached at the start of the year. Gasoil cracks remained pressured by the supply overhang and high level of inventories in Singapore. However, the supply pressure has been offset somewhat by support coming from stronger seasonal regional demand, mainly in India, Vietnam, Sri Lanka and China. Another supporting factor has been expectations that the gasoil market could be more balanced with the peak of the maintenance season.

The gasoil crack spread in Singapore against Oman remained at the previous month’s level of around $10/b.

The Asian fuel oil market continued to weaken during March, as crack spreads remained pressured by the seasonal declining demand. Another bearish factor has been the oversupply seen in the Singapore hub, amid increasing exports from Japan. The fuel oil crack spread in Singapore against Oman lost more than $2 to average about minus $9/b in March. Further losses were limited by lower inflows from the Middle East ahead of the customary rise in power generation demand in the region.