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Singapore Apr/May gasoil timespread flips to contango on higher flow to Asia

Singapore — The Singapore front-month gasoil timespread has flipped to a contango structure with gasoil volumes trapped in the region by a closed East/West arbitrage and the threat of an increasing flow of barrels to Asia, gasoil trading sources said Thursday.

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At 0300 GMT Thursday, the April/May timespread dug even deeper into negative territory -- with market participants valuing the spread at minus 18 cents/b -- after it lapsed into a contango at Wednesday's Asian close,

The prompt intermonth spread was last seen in a contango structure almost three weeks back on February 21, when it was assessed at minus 5 cents/b, S&P Global Platts data showed.

A contango market structure means that the value of gasoil is stronger for future dates than for prompt dates.

Further down the curve, the Q2/Q3 quarterly spread showed a steeper contango at minus 43 cents/b, down 14 cents/b day on day.

Gasoil sources said late Wednesday that the weakness at the front of the curve for the middle distillate was due to healthy supplies weighing down the market.

"There's too much oil trapped here due to two VLCCs, and with the strong East/West, India-origin cargoes are pointed East for end-March," a Singapore-based trader said.

Market participants said this week that trading house Total has two newbuild VLCCs parked in Malacca, Malaysia, which were filled with ultra-low sulfur grade gasoil. Traders said that one of the VLCCs, called Front Defender, has mostly discharged all of its gasoil volume, while there was uncertainty over the Amyntas.

Sources said that a VLCC can carry around 280,000 mt of gasoil, or 2.05 million barrels.

Total declined to share details Thursday.

While some sources said the gasoil volume from Total's VLCCs would be sold into Singapore, others disagreed, saying they did not see much volume moving into Singapore tanks.

Amid that backdrop, traders said that the closed East-West arbitrage economics were not helping matters.

Platts reported earlier this week that the East/West arbitrage had slammed shut, with sources saying that there was a likelihood that Indian-origin gasoil barrels will point towards Singapore.

"The relative value to send [Indian] gasoil barrels is better than to send it West," a source said earlier this week.

To that end, shipping sources said Sinochem plans to load a 60,000 mt gasoil cargo next week on the Sikka-Singapore route, with another 60,000 mt gasoil cargo belonging to Petraco scheduled to load in Vadinar over the coming weekend with voyage options to Singapore and East Africa.

In addition, according to shipping brokers, BP has a 90,000 mt gasoil cargo for loading in Ruwais on Thursday with options to take the cargo to Singapore or Europe.

Despite the raft of bearish news that was weighing down the market, traders were unsure Thursday whether the contango in the Asian gasoil market would be sustained.

"It's very hard to say [if the contango will be sustained]," a trader said.

"I still see North Asian supply as quite tight due to the refinery turnaround season ... I think it will be rangebound for now. At these contango levels, it's not enough to encourage storing as the contango is too shallow," he said, adding that the contango would need to reach below minus 60 cents/b for viable storage economics.

Another source agreed, saying that anything could happen to change fundamentals in the Asian gasoil market.

"It's now only the middle of March, so there's a good chance that something will happen ... if the [refinery] turnaround season bites hard or the VLCCs move away, then what seems now like a lot of supply will be gone, and that could have a significant shift in the market," the other source said Thursday.

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

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

--Wanda Wang, wanda.wang@spglobal.co,

--Sameer C. Mohindru; sameer.mohindru@spglobal.com

--Edited by Geetha Narayanasamy, geetha.narayanasamy@spglobal.com