Front month Singapore gasoil time spread at five-month high on China stimulus

The Singapore 10 ppm sulfur gasoil front month derivative time spread rose to a five-month high Sept. 25, following China's surprise stimulus program, although persistent broader market weakness continues to exert pressure on the overall complex.

Platts assessed the FOB Singapore 10 ppm sulfur gasoil front-month time spread at plus 10 cents/b at the Asian close Sept. 25, flipping from minus 4 cents/b in the previous session, S&P Global Commodity Insights data showed.

The front month time spread was last assessed higher at plus 22 cents/b on April 16, staying mostly in a contango structure since then, Commodity Insights data showed.

The broader Asian gasoil market structure continued to remain in contango amid weak fundamentals driven by poor demand and an unviable arbitrage to the West.

The Platts-assessed Singapore 10 ppm sulfur front quarter derivative time spread was assessed at minus 27 cents/b at the Asian close Sept. 25, with the contango structure maintained since Aug. 20, according to Commodity Insights data.

In a surprise move, Beijing unveiled a slate of monetary stimulus over Sept. 24-25 aimed at improving liquidity in the country's economy which continues to struggle through an uneven recovery.

This included a 50 basis points cut to the closely watched Reserve Requirement Ratio followed by a 30 bps cut to the central bank's key benchmark lending rate – the Medium-term lending facility rate.

"A fresh stimulation package in China [boosted the gasoil market]," said a Singapore-based middle distillate trader.

Gasoil is applicable for transportation as well as industrial use, so market participants anticipate that a revival in the construction sector could boost gasoil consumption in China, leading to fewer gasoil exports.

"Things could be changed as the Chinese government's stimulus policy opens," another market source said adding that weak margins may also incentivize refiners to cut runs.

The Platts front-month Singapore 10 ppm sulfur gasoil against front month Dubai swap crack averaged $12.77/b over Sept. 1-25, narrowing 15.52% from August's average of $15.12/b.

October is slated to see fewer cargoes from major exporters China and South Korea, due to harvest season, a modest Chinese export quota allocation, and lowered refinery run rates among South Korean refiners.

Recent spot interest from Indonesia perked up the market, as Pertamina sought up to 800,000 barrels of high speed diesel with a maximum 2500 ppm sulfur content, for delivery across Tuban, Balikpapan and Pulau Laut over Oct. 3-11, sources said.

The last time the company sought that grade was for Aug. 22-29 delivery, and for half of the volume, according to tenders tracked by Commodity Insights.

Indonesia has been a key outlet for medium to high sulfur gasoil barrels, but few imports were expected as the country has increased its biodiesel blend, and pushed back maintenance at its Cilacap refinery to January 2025.

The benchmark Platts-assessed cash differential for 10 ppm sulfur gasoil cargoes FOB Singapore narrowed 18 cents/b on the day to touch a one-month high at minus 29 cents/b to MOPS gasoil assessments at 0830 GMT on Sept. 25. The differential was last seen narrower on Aug. 21 at minus 21 cents/b.

Demand outlook unclear

The longevity of the sentiment boost by the latest stimulus moves remains precarious, market observers noted, given a broader confidence deficit in China's economic recovery.

The health of the country's construction and real estate sector – which contributes to about a third of China's gasoil consumption – remains unclear with mortgage rate benchmarks still unchanged.

While the latest slate of measures could lift segments of the sector, a broader confidence deficit continues to underpin the bearish outlook on China's real estate with the five-year Loan Prime Rate – a benchmark for mortgage rates – remaining unchanged.

Furthermore, the sector's debt crisis has contributed to a slump in consumer and investor confidence, impacting discretionary spending and domestic demand which is struggling to drive economic growth.