Singapore — The Asian gasoline market is swamped in supply, because refineries are running at maximum rates to take advantage of positive margins while demand has not kept up.
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"Demand is pretty good everywhere. But since there is massive oversupply, it's all overshadowed," an Asian producer said Friday.
Singapore, which has the region's largest commercial oil storage capacity, reported yet another record high in onshore inventories of light distillates, mainly gasoline and blendstocks.
The stocks rose 2.7% week on week to 15.54 million barrels as of March 2, according to International Enterprise Singapore data. The stocks are up 17.9% year on year.
Refineries across the region are running at maximum levels as refining margins are still positive and at decent levels, market participants said.
This has been the case since second-quarter 2015, when the latest round of gasoline market bullishness started, as relatively low pump prices enticed firm global demand.
The benchmark FOB Singapore 92 RON gasoline crack against front-month Brent futures averaged $7.85/b in February, almost halved from January's $15.33/b as the market became more saturated.
February's average crack was nearly $1/b lower than the same month in 2015.
"It's still a lot better than the winters, where we saw cracks of $4-$5/b." an Indian producer said. Gasoline producers in Northeast Asia, especially South Korea and Taiwan, are running their refineries at maximum rates, except for those with planned turnarounds.
"Domestic demand has been good as usual," a Taiwanese producer said. "And our export volume has been stable too."
Taiwan's gasoline consumption rose 3% year on year in 2015, but supplies have increased 4% during the same period, government data showed.
Exacerbating the oversupply, China's voracious appetite for gasoline blendstocks such as reformate has been drawing cargoes to Asia from outside the region.
Reformate has been exported in larger quantity from Europe to China on board Long Range 2 tankers so far this month, compared to Medium Range tankers in February, shipping sources said Thursday.
A total of 320,000 mt of reformate has been fixed to Asia so far in March, up from 285,000 mt in all of February. Almost all of the cargoes are expect to go to China for gasoline blending.
China produces much more gasoline than it consumes, so each month the country ships out around 500,000 mt of the fuel, mainly to Singapore, before the supply is resold to other Southeast Asian countries.
China's current domestic prices are more attractive than export prices, due to a new pricing mechanism introduced by the government to support domestic producers. But when international oil prices rise higher, Chinese exports are expected to resume in large quantities, trade sources said.
"That would further pressurize the cracks," said a source at an Asian refinery. "Unless cracks fall further down ... refinery cuts will take some more time. It's survival of the fittest, and the first ones to succumb should be the Europeans."