Asian medium sulfur gasoil differential to see near-term volatility amid uneven demand

The FOB Singapore 500 ppm sulfur gasoil cash differential is expected to remain volatile in the near term amid uneven to moderately weak regional demand, trade sources told S&P Global Commodity Insights.

Over Aug. 1-19, FOB Singapore 500 ppm sulfur gasoil cargoes averaged minus $1.76/b against the Mean of Platts Singapore gasoil assessment, widening from July's average of minus 58 cents/b and June's average of minus 54 cents/b, Commodity Insights data showed.

The differential had narrowed 16 cents/b on the day to minus $1.86/b at the Asian close Aug. 19.

During the Asian Platts Market on Close assessment process Aug. 19, three bids by Vitol for 150,000 barrels each of 500 ppm sulfur gasoil loading over Sept. 3-7, Sept. 8-12 and Sept. 13-17 at minus $2.10/b stood at the close without attracting any selling interest. The bids were normalized to account for deemed pricing.

"Demand is very weak for medium sulfur [gasoil]. Even though Asia mostly uses 10 ppm, there is still good supply of 500 ppm sulfur gasoil," a regional gasoil trader said.

This was also reflected in recent spot tender activity, with South Korea's GS Caltex selling two 150,000-barrel 500 ppm sulfur gasoil cargoes loading over Sept. 7-11 and Sept. 13-17 at discounts of around $3.50-$3.80/b to the September average of the Mean of Platts 10 ppm sulfur gasoil assessments, FOB Yeosu.

South Korea's SK Energy also sold a similar-sized cargo loading from Ulsan over Sept 1-3 at the same price. Buyers for the GS Caltex and SK Energy cargoes could not be ascertained.

Meanwhile, Taiwan's Formosa Petrochemical sold 150,000 barrels of 500 ppm sulfur gasoil loading over Sept. 15-19 to an Asian trading company at a discount of around $3.70/b to the September average of MOPS 10 ppm sulfur gasoil assessments, FOB Mailiao.

The company did not offer medium sulfur gasoil for sale via tender in June and July, trade sources said. They attributed the presence of this spot cargo to term buyers not lifting their regular allocations and added there could be more spot offers in the near term.

"Usually 500 ppm sulfur gasoil from Taiwan can be used for high seas bunkering. If the term buyer is not taking the volume, it means demand is weak or that they can buy it cheaper in the spot market," an industry source said.

The demand from Vietnam -- a key importer of the medium sulfur grade in Asia -- has remained lackluster in August,even though media reports said the country had opposed China's annual fishing ban in the South China Sea citing a violation of its sovereign rights.

The ban, which runs from May to Sept. 16 in an effort to protect marine resources, also leads to lower demand for 500 ppm sulfur gasoil which powers motorized fishing boats.

Gasoil imports into Vietnam saw a steady decline in July amid ample domestic supply from the 130,000 b/d Dung Quat refinery and 200,000 b/d Nghi Son refinery. Both the refineries collectively meet about 70% of Vietnam's demand for oil products, while the remainder is sourced through imports.

Vietnam's gasoil inflows dropped 36.19% on the year to 329,204 mt (79,115 b/d) in July, the steepest decline seen among oil products. This brought total gasoil imports over January-July to 2.9 million mt, 12.98% lower than the same period last year, Vietnam Customs preliminary data showed.

"Vietnam is going to rely on domestic supply going forward so if they don't import as much 500 ppm sulfur gasoil, then the next demand outlet is Indonesia but they haven't really been importing since Balikpapan refinery came back online," said a regional middle distillates trader.

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

The Platts FOB Singapore 10-500 ppm sulfur gasoil spread narrowed 19 cents/b on the day to $1.66/b at the Asian close Aug. 19, Commodity Insights data showed.