Asian gasoline markets to stay subdued as COVID-19 hits demand
The outlook for the Asian gasoline market is set to remain bleak in second-quarter 2020, as the coronavirus pandemic not only buckles seasonal trends, such as increased driving during the upcoming festive season in some countries, but also hampers activity in others due to lockdowns to halt the spread of COVID-19.
In India, the country’s transition to Bharat Stage VI fuels, which was expected to result in a demand surge for motor fuels with low sulfur content, will likely have a muted impact on demand as the country’s recent moves –the ‘Janta Curfew’ and the nationwide lockdown–will weigh on both market sentiment and consumption.
The positive correlation between gross domestic product and gasoline consumption means that gasoline demand will be in jeopardy amid weakening global macroeconomics in Asia and elsewhere.
The world economy is forecast to go into recession in 2020, with global GDP rising by just around 0.4%, according to S&P Global Ratings. This comes even though central banks are offering fiscal and monetary stimuli to support their economies.
INDONESIA DEMAND LULL
Indonesia, Southeast Asia’s largest buyer of gasoline, has seen COVID-19 cases rise with 1,414 confirmed and 122 deaths as of early Wednesday.
“As COVID-19 infection rates worsen, we assume the government will eventually implement a nationwide lockdown in April, disrupting economic activity severely,” Nomura said in a research report on March 27.
In its base case scenario for Indonesia, Nomura said it was cutting its 2020 GDP growth forecast by 4.9 percentage points to minus 0.6%, as it now expects both local and global COVID-19 outbreaks to hit the economy sharply, particularly in Q2.
Traditionally, Indonesia’s peak gasoline demand occurs during the Muslim fasting month of Ramadan, which begins towards the end of April and last till the end of May this year, followed by the Islamic holiday of Eid al-Fitr. More stringent containment measures could derail this trend.
State-owned Pertamina has already tapered its pre-Ramadan intake of gasoline to around 10 million-11 million barrels of gasoline in April, down from the 12.236 million barrels the country imported in April 2019, according to market sources.
US RBOB WEAKNESS TO PERSIST
Asian gasoline crack spreads closely track movements in the US RBOB/Brent crack, with the latter typically rising during summer, from April to October. This is because gasoline is more expensive to produce in summer than in winter due to its lower RVP content.
US President Donald Trump’s move to declare a state of emergency to combat the coronavirus spread, has led to a plunge in the US RBOB/Brent, which fell into negative territory for the first time in over a year, a record low of minus $7.45/b on March 24.
In the week ended March 20, total product supplied for gasoline — considered a proxy for demand — registered a 860,000 b/d fall, the biggest single-week slide since the Category 5 Hurricane Dorian hit the US Atlantic Coast in September 2019, EIA data showed.
Further, the US Environmental Protection Agency on March 24 relaxed rules for summer gasoline standards, to allow for sales of winter-grade gasoline at least through May 20.
Market participants expect this move to weigh on the seasonally low US RBOB/Brent crack spread, capping any potential upside in Asian gasoline.
INDIA’S BS VI TRANSITION
India’s transition to BS VI fuels from April 1 is also unlikely to provide much respite to the complex.
The introduction of BS VI, or Euro 6 equivalent, fuel grades in its domestic markets would see sulfur levels in domestically consumed motor fuels drop from the current maximum of 50 ppm to a maximum of 10 ppm.
India’s output of BS VI gasoline totaled 1.931 million mt in February, lower than demand that rose 11.2% month on month to 2.51 million mt in the same month, data from the Petroleum Planning and Analysis Cell showed.
A demand-supply gap of Bharat Stage VI gasoline prior to the transition, saw India as a potential outlet for low sulfur cargoes, but the 21-day nationwide lockdown imposed from March 24 has caused a grave mismatch in demand and supply, industry sources said.