Asian gasoline suppliers lift Middle East exports as East-West spread falls: sources

Singapore — A weak East-West spread has opened the arbitrage for gasoline to flow from Asia to the Middle East, providing a much needed avenue for several refiners that are looking to clear some of their high domestic stocks, industry and trading sources told S&P Global Platts.

At least six tankers have been spotted being placed on subjects to move cargoes from Asia to the Middle East, with four having been chartered to move gasoline from India to ports in the Middle East, while South Korean refiners are poised to raise near-term exports to the Persian Gulf market in a rare move.

According to S&P Global Platts' trade-flow software cFlow, LR1 tankers BW Clyde, Hafina Europe, and Sereno have been placed on subjects to move gasoline mid-February from India to Middle East ports, while smaller MR tanker BW Lynx has been placed on subjects to move gasoline mid-February from India to Sohar.

In addition to cargoes from India, LR1 tankers Margarita and SCF Alphine were also heard from shipping sources to have been placed on subjects to load gasoline through first half of March from China, with an option to discharge the cargo in the Middle East, among other destinations such as West Africa.

In South Korea, at least two refiners are preparing to export one cargo each to the Middle East in the coming weeks as they are grappling with excess domestic inventory amid prolonged movement restriction measures put in place at home, said middle distillate marketing sources based in Seoul with close knowledge of the matter.

The cargoes could potentially head to the UAE, but the sources declined to comment on the fixture timing and the exact volume of the gasoline shipments.

"Asia-Oceania is the primary export market for us and it's rare to sell transportation fuels to the Middle East... but we will seize any window of opportunity to sell cargoes elsewhere in order to control domestic stock levels," one middle distillate marketing source said.

South Korea's domestic gasoline stocks reached 6.29 million barrels in January, the highest level since 6.42 million barrels in February 2020, latest data from state-run Korea National Oil Corp. showed. The motor fuel stocks were estimated to have shot above 6.5 million barrels in February, according to industry survey conducted by Platts in the week of March 14.

East-West spread

"The [arbitrage] route is workable to move the cargoes out [of Asia]. The tight supply in the Middle East, coupled with the lower inflow from Europe and the Mediterranean has boosted the need for cargoes to be sourced elsewhere," one Singapore-based trading source said.

According to indications from market sources, the gasoline East-West spread -- a measure between Asian and European gasoline prices -- fell from around minus 60-65 cents/b on Feb. 25 to minus $2.90-$2.94/b on Feb. 26, as the impact of Winter Storm Uri spurred heavy buying from the US Atlantic Coast.

Delays to US refinery start-ups, tightening US supply and uptick in US driving activity stretched the USAC buying into March, and as such, pulled the gasoline East-West spread further down, to minus $3.90/b on March 15, before rebounding to minus $3.40/b in early morning Asian trade March 17.

Looking to take full advantage of the East-West and Asia-US arbitrage window, South Korea's Hyundai Oilbank told Platts March 16 that the refiner is planning to export gasoline to the US for the very first time.

Hyundai Oilbank is poised to ship out around 300,000 barrels of gasoline early in the second quarter to cater to the needs of some US distributors looking to cover their short positions after last month's freeze crippled refineries in the Gulf Coast, a company official said.

Slow Chinese output

Asian gasoline participants are increasingly positive on the motor fuel's near-term outlook, noting that although regional demand is still shaky, the tightening supply conditions have raised sentiment.

"Chinese refiners are going into a period of maintenance in March onwards, and with cargoes leaving Asia, fundamentals have improved," the Singapore-based source added.

In total, about 50 million mt/year of refining capacity at six state-owned refineries -- five owned by Sinopec and one by CNOOC -- is expected to be shut over the March-April period, with May also witnessing some maintenance, albeit less, Platts reported earlier.

Run rates at Chinese state-owned refiners in March is therefore expected to ease from a seven-month high of 82.8% in February.