Uneven African demand spurs divergence in support for Asian transportation fuels

Singapore — Uneven demand recovery in Africa has led to a divergence in support for Asian transportation fuel markets as gasoil and jet fuel requirements weaken while demand for gasoline remains robust, industry sources said Dec. 2.

The slowdown in Africa's gasoil and jet fuel demand in particular has removed a significant pillar of support from Asian middle distillate markets after buoying them for most of the third quarter, the sources said.

"Some gasoil demand from East and South Africa was seen in September and that helped to draw surplus barrels from India... but for now, while they have some regular demand, there's not much seen out of the ordinary in terms of demand from Africa," a middle distillates trader with a Persian Gulf-based company said.

Another industry source said gasoil demand from East Africa seems to have slowed, with requirements having been mostly fulfilled in early November.

Against that background, market participants said surplus gasoil barrels from the Persian Gulf and India may flow toward Singapore amid a strong Exchange of Futures for Swaps or EFS spread. The firm EFS is reflective of the supply tightness in the Asian gasoil market, which has been driven by a sustained period of refinery run cuts that have slashed production, they said.

The December EFS spread narrowed to plus $1.62/mt at the 0830 GMT Asia close Dec. 1 from plus $2.02/mt the day before. A positive EFS spread between 10 ppm gasoil Singapore swaps and ICE low sulfur gasoil futures indicates gasoil commands a higher price in Asia than in the West.

GASOLINE FIRM

The Asian gasoline complex in contrast continues to draw support from Africa, where output from refineries and inflow from the Mediterranean has lagged demand recovery.

"Most of Africa has eased movement restrictions, so people need the fuel for driving now. As compared to gasoil or jet fuel which are affected by other factors such as international travel or industrial activity, gasoline is directly influenced by how much freedom people have to go about their daily lives," a Singapore-based source said.

Driving activity in South Africa is back to pre-pandemic levels, even touching a near 9-month high in late November at around 40% above baseline levels, according to mobility data from Apple.

Mirroring the positive data, South Africa's PetroSA returned to the spot market in mid-November after an 8-month absence seeking 30,000 mt of 95 RON gasoline for December delivery, according to public tenders seen by Platts.

This came after Kenya in early November emerged to buy 167,700 mt of 93 RON gasoline for December deliveries, after purchasing 240,000 mt for November, Platts reported earlier.

INDIRECT SUPPORT

The African continent draws most of its gasoline and middle distillate imports from the Persian Gulf and the Mediterranean, and any increase in demand typically lends indirect support to Asia, market sources said.

"Cargoes to Africa typically come from the Middle East or the Mediterranean given the geographical ease of movement. Even then, if cargoes move from the [Middle East] to Africa, it just means fewer cargoes moving from the [Middle East] to Asia," a Singapore-based source said.

A senior middle distillates trader based in Singapore estimated monthly requirements for gasoil into major importing countries in East and South Africa at around 900,000 mt.

"Kenya and South Africa would be around 200,000 mt/month, while Tanzania and Mozambique are around 150,000-250,000 mt/month," he said. "All this demand is mainly covered by AG [Arab Gulf] and Indian barrels, and occasionally from Singapore or North Asia," he added.

China, a major exporter of transportation fuels, has extended exports to Africa in recent years. The first African country to receive Chinese gasoline was Togo in April 2018 at 50,000 mt, followed by Nigeria in January 2019 at 51,000 mt, historical General Administration of Customs data showed. Most recently, China shipped 37,000 mt of gasoline to Nigeria in September for the first time since July 2019, GAC data released Oct. 26 showed.

The most recent gasoil exports from China to Africa were in June, with Kenya and South Africa receiving 40,000 mt and 35,000 mt, respectively, GAC data showed.