Asian high sulfur gasoil strengthens on Indonesian buying interest

The Asian high sulfur gasoil market saw a rise in prices and a narrowing of the spread to its lower-sulfur counterpart amid expectations of continued spot demand, particularly from Indonesia's Pertamina following reduced domestic production on the back of technical issues at the Balikpapan refinery, sources said.

The Platts FOB Singapore 10-500 ppm sulfur gasoil spread narrowed 2 cents/b on the day and 16 cents/b on the week to an over two-month low of 49 cents/b at the Asian close Oct. 8. The spread was last narrower at 37 cents/b on July 31, S&P Global Commodity Insights data showed.

The 360,000 b/d Balikpapan refinery was expected to reduce gasoil production until end-October due to unexpected technical issues with either the HDU or HCU units, sources close to the matter said.

However, some sources were skeptical that the refinery could resume normal operations by the end of the month.

Indonesia has issued two tenders amounting to at least 2.7 million barrels of high sulfur gasoil for delivery in October, and market participants were trying to assess whether the demand would continue in November, pending the status of the Balikpapan refinery.

"The high sulfur market is still very tight in Singapore after Pertamina's buying... so we are prioritizing resupplying high sulfur, especially gasoil 500 ppm," said a Singapore-based gasoil trader.

Meanwhile, the Platts FOB Singapore 10-2,500 ppm sulfur gasoil spread held stable on the day, but rose 13 cents/b on the week, at 83 cents/b at the Asian close Oct. 8. The spread was last narrower at 82 cents/b on Sept. 25, Commodity Insights data showed.

Before the drop in spreads in H2 September, they had been at a similarly narrow range when a fire at Balikpapan refinery caused its outage from May 25 to July 26.

Indonesian purchases

Indonesia's Pertamina was heard seeking up to 400,000 barrels of 2,500 ppm high-speed diesel loading from Singapore or Malaysia over Oct. 14-25 and up to 1.2 million barrels of 2,500 ppm high-speed diesel for delivery to Tuban, Tanjung Uban and Pulau laut over Oct. 21-31, Oct. 18-20 and Oct. 29-31, respectively, via a tender that closes Oct. 9 with two-day validity, sources said.

Pertamina earlier sought via tender up to 1.5 million barrels of high speed diesel with maximum 2,500 ppm sulfur content, loading over Sept. 28-Oct. 6, from the Straits for delivery over various dates over Oct. 3-11 to Tuban, Balikpapan and Pulau Laut, Commodity Insights reported earlier.

"Heard [there could be] potentially 1.5 million to 2 million barrels of demand [from Indonesia] due to this refinery issue [at Balikpapan]," said another Singapore-based gasoil trader.

Indonesia's domestic demand for gasoil is also expected to rise amid seasonal demand as the year-end holiday period in December approaches, sources said.

However, sources said the fall in Indonesia's gasoil production could be moderated, as overall gasoil production could be buoyed in the short term, seeing that the 348,000 b/d Cilacap refinery delayed a planned turnaround.

Pertamina had postponed to January works at Cilacap that were originally scheduled over Oct. 15-Nov. 15, according to market sources. The plan was heard to have been delayed in order to bolster Indonesia's overall production, following an earlier unplanned turnaround at the Balikpapan refinery, a source close to the matter said.

A few fresh trades occurred in the ultra-low sulfur gasoil segment in Asia this week, which capped market gains despite shorter supply in October compared with September due to higher domestic consumption amid the harvest season. However, the Chinese economic stimulus, spot activity from Indonesia for high sulfur gasoil and expectations of a resumption in activity this week post-holidays in North Asia strengthened trading sentiment for ultra-low sulfur gasoil.

The Platts-assessed cash differential for ultra-low sulfur gasoil cargoes loading from Singapore was last assessed at a premium of 29 cents/b at the Asian close Oct. 8, up 5 cents/b day on day and 1 cent/b on the week, Commodity Insights data showed.

In comparison, gains were more significant for the high sulfur segment as the Platts-assessed cash differential for FOB Singapore 500 ppm gasoil cargoes was last assessed at a discount of 20 cents/b at the Asian close Oct. 8, up 7 cents/b on the day and 17 cents/b on the week, Commodity Insights data showed.

Reflecting an uptick in interest for the product, the FOB Singapore 10 ppm sulfur gasoil derivative crack spread to front-month Dubai swap – a measure of the product's relative strength to the crude it was refined from – widened $1.24/b to an average of $14.26/b in the week to Oct. 8, higher than the average of $13.02/b the previous week.