Asian gasoline crack seen set to spiral lower after rise in US inventories
A rise in US gasoline stocks pushed the physical benchmark FOB Singapore 92 RON gasoline crack against front-month ICE Brent crude futures to a six-week low Tuesday and it is likely to fall further in coming days, market sources in Asia said Thursday.
The bearish outlook comes despite a 27 cent/b day-on-day rebound in the crack to $9.02/b Wednesday after hitting that six-week low of $8.75/b the day before. It was last lower on March 16 at $8.69/b.
The crack had averaged at a higher $10.83/b in April.
Market sources said it has fallen in recent sessions tracking the RBOB crack, after the two had moved in tandem throughout April.
The RBOB crack, the spread between NYMEX RBOB and front month ICE Brent crude futures, rose $1.10/b day on day to $13.82/b Wednesday, but remained well below its average in April at $16.92/b.
Soft gasoline demand and ample supply continue to point to length in the US gasoline market.
US gasoline stocks stood at 241 million barrels in the week ended April 28, up 191,000 barrels from the week before, latest US Energy Information Administration data showed. This is 19.5 million barrels above the five-year average for this time of year.
Analysts surveyed by S&P Global Platts Monday had expected US gasoline stocks to rise by 500,000 barrels in the week, and while the build was lower than expected, it would still weigh on sentiment, analysts said.
“Over the last two weeks, product cracks have started crashing, so it’s been products really leading the market lower,” said Stephen Schork, publisher of the Schork Report.
However, some traders in Singapore said the FOB Singapore 92 RON gasoline crack may deviate from the lead set by the NYMEX RBOB in coming weeks as Asian gasoline fundamentals could find support in regional refinery turnarounds, a forecast gasoline shortfall in Japan, changes to China’s gasoline export quotas and continuing talk of a mixed aromatics consumption tax in China.
At least 713,200 b/d or 20% of Japan’s refining capacity is due to be shut over May-June for turnarounds, according to Platts calculations.
Japan’s installed capacity will decline to around 2.81 million b/d during the peak turnaround period as a result, falling short of domestic product demand and likely spurring refiners to import refined products to cover requirements.
China is expected to have about 1.09 million b/d of primary distillation capacity taken offline for turnarounds in May, according to Platts China Oil Analytics data.
This is almost double the maximum 550,000 b/d of capacity taken offline for turnarounds in any single month last year.
CHINA EXPORTS DOWN 77%
A decline in China’s export quotas is also expected to curb supply of gasoline to the region.
China has allocated a second round of oil product export quotas for this year at 3.335 million mt, down 77% from 14.59 million mt in the same round last year.
This includes 3.89 million mt of gasoline, down 51.8% year on year. The low allocations are in line with expectations Beijing wants to restrict outflow to control refining capacity and pollution.
A widely expected tax on mixed aromatics, a key component of blending material for gasoline, is also expected to curb gasoline production in China.
China’s mixed aromatics imports have surged in recent years and have been free of consumption tax, but market sources have said the tax could be imposed in May, already resulting in the cancellation of cargoes headed for China.
However, for the moment, mixed aromatics traders have returned to the market amid growing indications the tax is unlikely to be imposed in the near term, reportedly due to difficulties in separating taxable mixed aromatics barrels for gasoline blending from those for petrochemical production. This could help bolster Asian gasoline demand.
However, seasonal gasoline demand for Ramadan has yet to pick up, with trader views mixed on whether it will.
The general view is that any pick-up in demand for Ramadan this year will be disappointing in comparison to previous years.