Asia medium sulfur gasoil differential weakens as Indonesia demand tapers

The FOB Singapore 500 ppm sulfur gasoil cash differential has weakened in August as demand from Indonesia tapers following the resumption of operations at state-owned Pertamina's Balikpapan refinery No. 4 crude distillation unit in East Kalimantan.

Platts, part of S&P Global Commodity Insights, assessed FOB Singapore 500 ppm sulfur gasoil cargoes against the Mean of Platts Singapore gasoil assessment at a 10-week low of minus $1.70/b at the Asian close Aug. 6. The differential was last weaker at minus $1.74/b on May 27.

During the Asian Platts Market on Close assessment process Aug. 7, Chevron sold 150,000 barrels of medium sulfur gasoil loading from the Straits over Aug. 21-25. The trade was assessed at a discount of minus $2.49/b against the MOPS gasoil assessment, after accounting for deemed pricing.

"[The reason is] less demand from Indonesia. That's all," a regional middle distillates trader said.

The 360,000 b/d CDU No. 4 at Pertamina's Balikpapan refinery resumed operations July 26 following a fire May 25.

Indonesia imported 554,864 mt of gasoil from Singapore in July, rising from 519,933 mt in June and from 345,807 mt in May, Enterprise Singapore data showed. The data does not provide a breakdown by gasoil sulfur grades.

"It is not just Pertamina that is buying medium and high sulfur gasoil cargoes. There are other traders in Indonesia that also buy these grades, and once Balikpapan is up, demand from August should be much lower," a regional gasoil trader said.

Pertamina has sought 50,000 barrels of 0.005%S diesel loading from the Straits (Singapore/Malaysia) over Aug. 18-20, or delivery to Plumpang, Jakarta over Aug. 22-24, at the lower end of either the Aug. 9-31 average of MOPS Singapore 0.005%S gasoil assessment or Argus Singapore gasoil 0.005% sulfur assessment, FOB/CFR. The tender closes Aug. 7, with validity until Aug. 8.

The annual South China Sea fishing ban imposed by China, from May until Sept. 16 this year, to protect marine resources also leads to lower 500 ppm sulfur gasoil demand as the fuel is used to power motorized fishing boats.

Vietnam -- a key importing center of the medium sulfur grade, has denounced China's annual fishing ban, citing violation of the Southeast Asian nation's sovereign rights and jurisdiction in Vietnamese waters, according to local media reports.

The Philippines has also protested the ban on similar grounds.

"Usually demand for 500 ppm [sulfur gasoil] is weaker during the fishing ban but demand from Indonesia provided support in June and July," an industry source said.

In comparison, the cash differential for benchmark FOB Singapore 10 ppm sulfur gasoil cargoes against the MOPS gasoil assessment strengthened on the day to minus 31 cents/b on Aug. 6, from minus 33 cents/b on Aug. 5. The differential was unchanged on the week and weaker compared with July's average of minus 27 cents/b.

The Platts FOB Singapore 10-500 ppm sulfur gasoil spread widened 22 cents/b on the day to $1.39/b at the Asian close Aug. 6. The spread was last wider at $1.43/b on May 29, Platts data showed.

The Asian ultra low sulfur diesel complex has been largely stable, supported by pockets of regional demand, though trade participants have been cautious about a potential downside due to seasonal weakness.