Singapore gasoil swaps flip to first contango in 3 months as coronavirus cuts demand, boosts supply

The front-month structure for Singapore gasoil swaps flipped to contango for the first time in more than three months Thursday as an acceleration in the spread of the coronavirus beyond China's borders arrested demand and boosted exports.

The March/April gasoil timespread tumbled 15 cents/b day on day to close at minus 6 cents/b at 0830 GMT Thursday, S&P Global Platts data showed. The front-month gasoil timespread was last in contango at minus 3 cents/b on November 13 last year -- for one day. Prior to that, the Asian gasoil market had not been contango since a sustained period over early June to mid-July, 2019.

The flip into negative terrain comes as the coronavirus continues to spread outside China, taking hold in Japan and South Korea -- where the number of confirmed cases each day now outpaces that in China. Efforts to prevent a further spread of the virus have sparked concerns of a regional economic slowdown and accompanying impact on energy demand.

Asian gasoil traders said there have been tangible signs of slowing demand for gasoil in Asia this week.

"Regional demand for gasoil is not coming back -- Vietnam is not buying and Thailand is selling spot volumes that usually go into neighboring countries... that those countries are not buying indicates that demand is not good," a Singapore-based trader said.

Exports of gasoil from China -- driven by a drastic drop in domestic demand due to extended holidays following the Lunar New Year -- as well as from South Korea are flowing into the market, with latest data showing robust gasoil volumes moving from the two countries into Singapore.

Gasoil inflows to Singapore from South Korea and China were recorded at 129,365 mt and 124,214 mt, respectively, over February 20-26, data released late Thursday by government agency Enterprise Singapore showed.

Platts reported last week that the flow of Chinese gasoil into Singapore hit an all-time high of 260,448 mt over February 13-19, surpassing the previous record of 259,524 mt for the week ended June 1, 2016. There was no South Korean gasoil flow into Singapore over February 13-19.

"There is just too much supply and things are looking bad, with demand very slow and China increasing its gasoil exports," a trader with a financial institution said. "I think it [the contango structure] will last -- the full curve is already in a contango and because we are building inventories, to get rid of these volumes is going to be a very difficult process," the trader added.