Price plunge spurs refined products buying as importers revamp supplies

Singapore — Asian buyers are rushing to make the most of ultra-low refined oil product prices by ramping up supplies, even as they grapple with a collapse in demand because of the coronavirus pandemic, sources told S&P Global Platts this week.

Indonesia's oil giant Pertamina for one, had previously announced plans to import around 9.3 million barrels of 92 RON gasoline and 10 million barrels of crude oil and condensate in May, with the company already having sought at least 1.1 million barrels each of 92 RON gasoline and 88 RON gasoline for loading/delivery over May to August, Platts previously reported.

Apart from gasoline, Pertamina had sought to buy 5-7 parcels of 10 ppm sulfur gasoil, with each lot comprising 110,000 barrels, for delivery over May-December.

The development came after Southeast Asia's key importer issued a buy tender in January seeking 3-4 parcels of 10 ppm sulfur gasoil over January-June, or 6-8 parcels of 10 ppm sulfur gasoil over January-December. The parcels, each 110,000 barrels, were all for delivery into Amamapare.

Elsewhere, state-controlled Ceypetco sought 300,000 barrels of 92 RON gasoline and 560,000 barrels of 500ppm sulfur gasoil via three tenders, according to documents seen by Platts.

"I think what Ceypetco is doing is that they want to lock in these purchases at low flat prices," a Singapore-based gasoil trader said.

Echoing similar views, another Singapore gasoline participant said, "It makes sense for them [Pertamina] to secure cargoes now, especially since it is cheap with the current oversupply."

The price of FOB Singapore 92 RON gasoline, the most liquid gasoline benchmark in Asia, was assessed at $28.77/b at Thursday's Asian close, a 59.71% plunge from the start of the year, according to Platts data. On April 13, the FOB Singapore 92 RON gasoline had hit a 21-year low of $16.97/b.

The downward spiral was also seen in the gasoil market, where the flagship FOB Singapore gasoil assessment nosedived since the start of the year to $22.92/b on April 22 -- its lowest value since the benchmark assessment reflected 10 ppm sulfur from January 1, 2018 -- before recovering to $33.08/b at the Asian close Thursday.

The slump in prices of transportation fuels reflect the unprecedented demand destruction in Asia, caused by the ongoing efforts to limit the spread of the coronavirus pandemic.

In Indonesia, daily consumption of transport fuels like gasoline dropped nearly 16% to 113 million liters, from a typical daily consumption of 134 million liters in mid-March, according to Fajriyah Usman, spokeswoman for national oil company Pertamina.

A similar drop is expected in Sri Lanka, with the country having imposed stricter restrictions since late-March, which includes a ban on intra-district travel as well as a work-from-home policy, media reports said.

While measures in Sri Lanka have started to ease this week, demand is only expected to recover gradually, with people staying cautious over fears of contracting the virus, a source said.

Bearishness looms large

While the emergence of spot buy tenders typically signal support, several market participants have waved bearish flags, noting that the purchases will hinder the ability for the market to absorb the current oversupply moving forward.

"If these cargoes go into floating storage, this means that end-buyers are going to have enough supply for a long time," a third market source said.

According to market sources, Ceypetco is opting to place the tendered cargoes on floating storage, as opposed to it typically being discharged at its ports at Colombo.

Likewise, Pertamina was heard to be using at least three Long-Range tankers for gasoline floating storage, source added.

"Gasoline domestic demand is poor. There is no more peak Ramadan driving. Pertamina's cargoes are just sitting there," another market source said.

Since mid-March, both the Asian gasoline and gasoil markets have been locked in a deep contango, where the price for the forward delivery month is higher than the prompt delivery month, encouraging participants to move cargoes into storage to take advantage of higher prices in the future.

At the Asian close Thursday, the contango structure in the Asian front-month gasoline and gasoil markets were assessed at minus 88 cents/b and minus 83 cents/b, respectively.