Asian ultra-low, medium sulfur gasoil spread narrows to over 8-month low on divergent fundamentals

The 10-500 ppm sulfur gasoil spread in Asia narrowed to an over eight-month low Nov. 24, showed data from S&P Global Commodity Insights, amid weaker ultra-low sulfur gasoil prices and a resilient medium sulfur gasoil grade.

The Platts FOB Singapore 10/500 ppm sulfur gasoil spread narrowed 31.03% on the day to plus 60 cents/b at the 0830 GMT close Nov. 24, the lowest level since March 1 when the spread was at plus 50 cents/b, S&P Global data showed.

The benchmark 10 ppm sulfur gasoil grade has been weakening through November as higher outflows from China, coupled with lower demand on the month from the West, raised the available supply in the region, according to market sources.

"The Chinese exports... although it has been in the news for long, nobody believed it until it started showing," said a source with a trading house. "Freight is higher, Europe is weaker, so just going to be a bit more weakness."

The cash differentials for Platts FOB Singapore 10 ppm sulfur gasoil cargoes against the Mean of Platts Singapore gasoil assessment fell 52.55% from the start of the month to plus $2.98/b at the Asian close Nov. 24, S&P Global data showed.

The cash differentials for Platts FOB Singapore 500 ppm sulfur gasoil cargoes against MOPS fell only 18.21% to plus $2.75/b over the same period, reflecting the relative resilience in the medium sulfur gasoil grade.

Medium sulfur gasoil is seeing some support from tighter supplies for the grade as well as healthy demand, sources said.

"500 ppm [sulfur gasoil] seems to be tight in terms of availability," said a regional middle distillate trader, adding that refineries in South Korea, key suppliers of the medium sulfur gasoil grade in Asia, were heard to be maximizing the production and export of ultra-low sulfur diesel.

The import demand from Vietnam, a key outlet for medium sulfur gasoil in the region, remains supported by the government's push to ensure sufficient domestic supplies despite financing issues amid high interest rates and a weak currency.

"The diesel oil 0.05%S consumption demand in Vietnam has been steady... but importing oil products is difficult," according to a market source. "I think very few importers in Vietnam now dare import... except Petrolimex and PVOil who are forced to import by the State to secure supply for the local market."

South Korea spot tender

South Korea's GS Caltex recently awarded a tender offering a 300,000-barrel 500 ppm sulfur gasoil cargo slated for loading over Dec. 25-27 to an unconfirmed buyer at a discount of around 50-65 cents/b to the whole-month December average of MOPS 10 ppm sulfur gasoil assessments, FOB Yeosu, market sources said, with the outcome coming as a surprise to most.

"Oh wow, that's higher than 10 ppm [sulfur gasoil]," said a source with a Northeast Asian trading house in reference to the tender outcome.

A regional gasoil trader said, "It's higher than expected... I think it's over bought in terms of value."

South Korea's SK Energy sold in the week ended Nov. 18 a 10 ppm sulfur gasoil cargo of 300,00 barrels for loading over Dec. 9-11 at a discount of around $1.20/b to the whole-month December average of MOPS 10 ppm sulfur gasoil assessments, FOB Incheon, according to market sources.

Several participants were cautious in their assessments of the tender outcomes, but said they reflect a tightening 10-500 ppm sulfur gasoil spread in the spot market.

"Honestly I don't agree with this number, I am not sure... the way MOC is getting assessed, this doesn't make any sense to me, unless it comes with some caveats," said a said a gasoil seller in reference to SK Energy's 10 ppm sulfur gasoil tender outcome.

Reflecting similar skepticism, the first source said, "Was SK [tender] really at -$1.20/b though... because it seems like that number looks a bit weird to me... probably for the week when SK exported, nobody needed it."

With the spread narrowing, some South Korean exporters have started to issue tenders with the option of supplying a cargo of either grade over the same laycan, sources noted.

SK Energy issued a tender offering a 300,000 barrel cargo of either 10 ppm or 500 ppm sulfur gasoil for loading over Dec. 12-14 from Ulsan, according to market sources. The tender closes Nov. 25, with same-day validity.