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Analysis: Japan's tight supply-demand balance to support refining margins

Singapore regrade swap slips to 3-month low as gasoil demand firms

Singapore — The front month Singapore March paper regrade -- a measure of the relative strength of jet/kerosene to gasoil -- hit a 3-month low Monday as gasoil demand firmed.

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At the Asian close Monday, the March paper regrade was assessed at minus 84 cents/b, down 32 cents/b from last Friday and the lowest level since October 26 last year, when it was assessed at minus 87 cents/b, S&P Global Platts data showed.

Market participants attributed the fall to stronger gasoil demand amid a lower regional supply outlook due to Asian volumes leaving the region and scheduled refinery maintenance in India.

Traders said they were expecting further upside in gasoil prices, although some noted there was still gasoil volumes being held in storage.

Still, the buoyant sentiment continued to lift the Asian gasoil market Monday, with the cash differential for FOB Singapore 10 ppm sulfur gasoil rising 5 cents/b from last Friday to minus 35 cents/b to Mean of Platts Singapore gasoil assessment at the Asian close Monday.

In the paper market, the front-month March/April gasoil timespread remained at a more than two-month high, with the contango structure narrowing 7 cents/b to minus 17 cents/b Monday, the slimmest since November 19 last year, when it hit minus 12 cents/b.

Bullish sentiment was also seen further down the curve, with the Q2/Q3 quarterly spread for gasoil hitting a two-month high at minus 35 cents/b Monday. The last time it was assessed higher was November 23 last year at minus 30 cents/b, Platts data showed.

In the Asian jet fuel/kerosene market, participants were expecting a rebound or price correction in the near term on the back of recent buoyant sentiment in the physical spot jet market, noting flows across the trans-Pacific arbitrage in particular have given the Northeast Asian spot market a much-needed boost.

This led to the FOB Singapore jet fuel/kerosene spot cargo differential surging to minus 27 cents/b Monday from a 10-year low of minus $1.78/b on January 25. A Singapore-based trader source attributed the surge to a heavier-than-usual refinery turnaround season slated for Q2.

Others were less convinced a rebound was imminent, pointing to a stubborn supply overhang in Japan at the tail end of winter. The country continues to export kerosene during its peak demand season, suggesting the demand-supply balance is less tight than usual this winter. The country's exports of kerosene surged 34.6% week on week to 1.47 million barrels in the week ended February 2, latest Petroleum Association of Japan data showed.

--Ng Jing Zhi, jz.ng@spglobal.com

--Zameer Yusof, zameer.yusof@spglobal.com

--Clarice Chiam, clarice.chiam@spglobal.com

--Edited by Wendy Wells, wendy.wells@spglobal.com