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Research & Insights
17 Nov 2021 | 08:15 UTC
By Fred Wang, Clarice Chiam, and Amy Tan
Highlights
Regional crude sentiment higher on month
Asian gasoil supply thins, jet fuel demand rises
Wide Brent-Dubai EFS may limit some upside
Sentiment for January-loading regional sweet crude barrels were firm amid resilient middle distillate crack spreads, coupled with recovering Asian demand, traders told S&P Global Platts Nov. 17.
A lack of arbitrage cargoes, strong intermonth spreads and good middle distillate margins were among the reasons cited for the uptrend in cash premiums.
PetroVietnam Oil sold a 300,000-barrel cargo of Chim Sao to Taiyo Oil, loading Jan. 15-19, at a premium in the mid-$4s/b to Platts Dated Brent assessments, FOB, traders said.
Last month, PV Oil Vietnam sold a similar size Chim Sao cargo to PV Oil Singapore, loading Dec. 10-14, at a premium in the mid to high-$3s/b to Dated Brent, FOB.
A shorter January loading program for Vietnamese crude may support premiums, a Singapore-based trader said, while results of Vietnam's Rang Dong crude tender is awaited.
Second-month gasoil and jet fuel swap cracks versus Dubai crude inched lower month on month and averaged $14.09/b and $12.84/b, respectively, to-date in November. The averages, however, were still the highest since December 2019, Platts data showed.
Meanwhile, trading activity of Malaysia's Kimanis crude are also in focus with eight cargoes available for January loading.
Brunei Energy offered a 600,000-barrel cargo of Malaysia's Kimanis crude for Jan. 3-7 loading via a tender which closes Nov. 17 and remains valid until Nov. 22, traders said. The refiner sold a similar size cargo of Kimanis to an end-user, loading Dec. 12-16, at a premium of around 50 cents/b to December MCO OSP, FOB.
Tender activity from ConocoPhillips, which was allocated a cargo of Kimanis for Jan. 17-21 loading is also expected.
Despite a wider Brent-Dubai Exchange of Futures for Swaps, sentiment for regional crudes remain strong amid recovering Asian refinery demand and economics.
"Some refiners need low sulfur crude irrespective of where Brent-Dubai [EFS] is," a crude oil trader said.
A wider EFS indicates that Dubai-linked crude grades are more economically attractive compared with Brent-linked alternatives.
Front month EFS averaged $5.05/b to-date in November, up from $4.26/b in October, Platts data showed.
Gasoil fundamentals have been firm amid the global demand recovery, however, supply was tight as major gasoil supplier China has slashed volumes since August.
Platts previously reported that China's October gasoil exports are likely to plunge 47% on the month to more than a six-year low amid soaring domestic prices and tight export quota availability.
The crunch in supply balances subsequently worked to shore up gasoil values to multi-month-highs, and while prices have recently eased, traders said sentiment remains bullish.
At the Asian close Nov. 16, front month FOB Singapore 10 ppm sulfur gasoil derivative time spread was assessed at plus 79 cents/b, up a cent from the previous session, while the cash differential for 10 ppm sulfur gasoil loading from Singapore was assessed at plus 61 cents/b to MOPS gasoil assessments, down 2 cents/b from the Asian close Nov. 15.
"It could be because of COVID-19 cases in China and also for Brent [crude], the flat price has come off so that will put some pressure on the time spread as well," a Singapore-based gasoil trader said.
"But fundamentals [for gasoil] are still good in South and Southeast Asia," he said, adding that Chinese exports for November are nil due to strong requirements from the domestic market.
Asia's jet fuel demand outlook remains optimistic although China continues to grapple with COVID-19 resurgences, which could slow demand recovery, industry participants said.
The FOB Singapore jet fuel/kerosene cash differential was assessed at a premium of 9 cents/b to the MOPS jet fuel/kerosene assessments Nov. 16, down 12 cents/b on the day, Platts data showed.
"The market structure for jet and gasoil seems weaker recently because China's export quota announcement got the market a bit confused," another trader said.
On Nov. 10, China's Ministry of Commerce approved the transfer of PetroChina's, Sinopec's and Sinochem's key oil products export quotas from the processing trade route to the general trade route.
The transfer allows the exporting companies to source for barrels without restriction in the domestic market, and to choose the barrels from gasoline, gasoil and jet fuel, translating to higher jet fuel exports from China, sources said.
Despite this, the winter season and incremental requirements of the aviation sector may support demand. Furthermore, viable arbitrage economics amid a widening EFS diverted "swing barrels" from India and Persian Gulf westward, further exacerbating the region's lean supplies.
"Europe is opening its borders to vaccinated travelers and that is unlikely to change. Demand [for jet fuel] still seems to be holding up well, supporting arbitrage," a trader said.