Singapore 10 ppm sulfur gasoil cash differential slides 65% in Feb on closed arbitrage, ample supply

Singapore — A closed arbitrage and plentiful supply of ultra low sulfur gasoil in Asia has pressured the cash differential for FOB Singapore 10 ppm sulfur gasoil cargoes down 64.9% since the start of the month, gasoil traders said Wednesday.

At the Asian close Tuesday, the cash differential for FOB Singapore 10 ppm sulfur gasoil cargoes was assessed down 10 cents/b day on day at plus 26 cents/b to the Mean of Platts Singapore gasoil assessments, a month-to-date low. The cash differential for the benchmark Asian gasoil grade had been assessed at plus 74 cents/b on February 3 and peaked a day later at plus 92 cents/b to MOPS gasoil assessments on an FOB Singapore basis, S&P Global Platts data showed.

"I think this downtrend reflects the closed arbitrage that we are seeing for gasoil and jet, so the cash differential in the East has been weakening to reflect that," a Singapore-based trader said Wednesday morning.

The arbitrage factor is of importance because gasoil length in the East may emerge given the current weak arbitrage economics to move gasoil barrels West due to high freight rates, sources said,

According to latest S&P Global Platts Analytics calculations, the arbitrage to move ultra low sulfur gasoil from the Arab Gulf to Northwest Europe is currently closed at a disincentive of minus $1.75/b.

This is based on a $1.61/b differential between the FOB ARA ultra low sulfur gasoil and FOB Fujairah spot prices, $3.09/b freight costs and a 27 cent/b market structure in the FOB ARA ultra low sulfur gasoil swaps market.

In addition, market sources said spot gasoil supply in Asia was ample, a direct result of poorer regional demand for the middle distillate at a time when gasoil exports from China were rising.

Middle distillate stocks in Singapore have hit a 20-week high on the influx of Chinese gasoil barrels into Asia's main trading hub: Latest data from government agency Enterprise Singapore showed inflows of Chinese gasoil barrels into Singapore hit an all-time high of 260,448 mt over February 13-19. This surpasses the previous record of 259,524 mt for the week ended June 1, 2016, according Platts data.

"The situation [for gasoil] may get worse before it can get better... how healthy it can get really depends on how quickly demand can recover in China," a market source said Wednesday.