Asian gasoline crack spreads plunge to near 7-month low amid coronavirus outbreak concerns

Singapore — The Asian gasoline market sunk to a near seven-month low at the close of Asia's trading session Tuesday, as the exacerbation of the coronavirus outbreak in China led market participants to reassess its near-term impact on regional supply-demand dynamics.

The FOB Singapore 92 RON gasoline crack against front-month ICE Brent crude futures in particular, was assessed at a seven-month low of $3.04/b Tuesday, a sharp 36.9% drop from the previous trading session's close of $4.82/b.

The physical crack was last lower on June 25, 2019 at $3.03/b, S&P Global Platts data showed

On the derivative end as well, the front month February 92 RON gasoline swap crack was assessed at a seven-month low of $3.46/b at 0830 GMT Tuesday, last lower on June 20, 2019 at $3.21/b.

GASOLINE DEMAND TO SLOW

"An immediate impact from the fears would be lesser driving [in the region], which would translate to lower gasoline demand," one Singapore-based gasoline market source said.

In addition to China, several Asian countries including Singapore, Malaysia, Thailand and Japan have reported confirmed cases of the coronavirus.

Thus far, the death toll as a result of the virus has exceeded 130, while the number of confirmed cases globally total at around 6,000.

"As news of more confirmed cases are reported, people will be less likely to come out [from their homes] and governments will make plans to minimize infections" a second market source said.

In Singapore, students and staff from public educational institutes are to take a compulsory two-week leave of absence should they have returned from China, according to a recent notice by the Ministry of Education.

In Hong Kong as well, schools will be shut for an additional two weeks after the Lunar New Year holidays to hamper the spread of the infectious virus.

China's gasoline demand is also poised to register a year-on-year decline in Q1 as the central Hubei province -- where Wuhan is located -- is considered one of the major transportation hubs along the Changjiang River, according to S&P Global Platts Analytics.

CHINESE SUPPLY TO PRESSURE ASIA

With domestic gasoline demand from China set to fall, excess barrels from refiners could likely be channeled into the export market, further weakening overall fundamentals, market participants said.

"The worry is that March would see higher export volumes as the [state-owned] refiners try to lower domestic surpluses" a third Singapore market source said

Since end-2019, China's gasoline exports have weighed on regional fundamentals, with December 2019's gasoline exports totaling 1.73 million mt, just 5.7% shy of the 1.84 million mt record high a month earlier.

The start-up of 400,000 b/d Zhejiang Petroleum & Chemical refinery in December 2019 is expected to lead to even more surplus barrels for export, a Beijing-based analyst said.

"Asia is heavy on the supply side with cargoes from China, which are already going at discount levels," the source added.

A Chinese state-owned company to that end, had most recently sold an MR-sized cargo for loading in end-February at a discount of around 60-70 cents/b to the February average of the MOPS 92 RON gasoline assessments, Platts reported previously.

A further reflection of the tepid market sentiment was the gasoline timespreads for February/March swaps, which flipped back to a contango market structure, narrowing sharply to minus 3 cents/b at the close of Tuesday's trading session, Platts data showed.

Last Friday, Platts had assessed February/March swap spread at plus 18 cents/b.