Asian gasoline to benefit as regional refineries adjust run rates

Asia’s gasoline market is expected to receive additional support in the fourth-quarter, as regional refineries attempt to adjust run rates to cater to diverging domestic and regional supply-demand factors.

South Korean motor fuel exports, for example, is estimated to total around 60 million barrels in Q4, down 14% from a year earlier and 9% lower than Q3, according to fuel marketing sources at SK Innovation, S-Oil Corp., GS Caltex and Hyundai Oilbank surveyed by S&P Global Platts.

The move comes as South Korean refiners attempt to keep the domestic and regional supply-demand dynamics balanced, South Korean sources said.

In Japan, refineries are expected to raise run rates towards the end of the year due to the production of kerosene for heating demand, but will keep its gasoline import appetite healthy, Platts previously reported.

In South Asia, Indian refiners were reportedly mulling cuts to run rates as weak middle distillate margins had forced some state-owned refiners to curtail output and turn toward regional imports to fill the gaps in supply.

“There is a limit as to how much you can tweak your yields to produce more light distillate and lower middle distillate. It might be better to just keep CDU levels lower to avoid too much inventories,” one source with an Asian refiner said

To that end, Asian jet fuel and gasoil markets are still struggling to recover as multiple waves of coronavirus infections across the region keep consumption patterns for both products fragile with low expectations of any significant upside to the end of the year

The poor sentiment was reflected in tumbling product crack spreads as the FOB Singapore 10 ppm sulfur physical gasoil crack to front month cash Dubai tumbled to historic lows in September.

Platts data showed that the physical gasoil crack to front month cash Dubai averaged $2.68/b over September, down by more than 50% from the August average of $5.44/b.

On the aviation front, tepid air travel demand was evident as air passenger traffic trickled to a drip, with the Association of Asia Pacific airlines reporting that the region’s carriers had only 1 million international passengers in August, or just 3% of the 34 million passengers it flew over the same period in 2019.

“Jet fuel/kerosene cracks performed so badly in September and refiners were reducing jet yields, or blending it with other products, like gasoil,” a trading source said.

In contrast, a growing preference for private vehicles, a steady demand recovery across Asia as well as a heavily supportive US gasoline complex has helped to bolster Asian gasoline crack spreads.

The FOB Singapore 92 RON gasoline crack against front-month ICE Brent crude futures averaged $3.65/b in September, up from the August average of $1.97/b, Platts data showed.

Asia’s diverging refined products fundamentals have led to gasoline crack spreads surpassing gasoil cracks since Sept. 4 — the first time it has done so since 2017. Likewise, jet fuel cracks have underperformed gasoline cracks since Aug. 4.

HEADWINDS REMAIN

But even as North Asian refineries reel in production, the motor fuel complex will continue to face headwinds in the form of coronavirus-led demand uncertainties and ample Chinese exports.

On the demand end, Southeast Asia will likely witness its largest gasoline buyer, Indonesia, become subdued in its spot buying activity as most of state-run Pertamina’s import requirement for Q4 is being fulfilled through existing term contracts, market sources said.

Agreeing one source added that, “they [Indonesia] are still trying to get the coronavirus under control with the new lockdown measures. This will keep their buying down.”

Aside from Indonesia, the Philippines — another regional buyer of gasoline — is also seeing a prolonged demand-side disruption from the coronavirus, with driving activity as of end-September still a sharp 55% below baseline levels, mobility data from Apple showed.

Meanwhile on the supply side, eyes will remain focused on China’s gasoline exports, which traditionally rise in the fourth quarter of the year as Chinese state-owned refiners rush to make use of their outstanding oil export quotas.

“Another round of [oil product export quotas] should come in the last quarter of the year. If it is heavier than expected, the [Asian] gasoline market may quickly drop back into oversupply,” another Singapore-based source said.

In October — when gasoline exports typically slow due to heavier domestic road driving given China’s golden week holiday — industry participants continue to peg overall gasoline exports at 1.428 million mt, almost flat from September, Platts previously reported.
Source: Platts