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Uptick in East Asia's COVID-19 cases puts brakes on gasoline demand, margin recovery

Highlights

Driving activity stalls amid new restriction measures

Uptrend in gasoline crack spread seen limited near term

Taiwan, South Korea offering more cargoes in spot market

Singapore — Headwinds have reemerged for the Asian gasoline market, as new pockets of COVID-19 infections across East Asia heighten concerns over new wide-spread movement curbs that could derail near-term demand-side recovery of the motor fuel and put the brakes on the uptrend in the middle distillate crack spread.

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Following the recent sharp slide in India's transportation fuel demand, the added concerns come as a number of East Asian countries such as Malaysia, Vietnam, Taiwan among others have since mid-April, begun to mull the need for new movement restrictions to curb a fresh uptick in community COVID-19 infections.

The near-term gasoline demand outlook in Asia appears to be less positive, with a rise in infection rates and associated movement restriction measures seen across Northeast and Southeast Asia, which could limit upside for gasoline cracks, Platts Analytics said in a weekly note.

Reflecting the cautiousness espoused by regional participants, the recovery in gasoline cracks has appeared to have plateaued. The FOB Singapore 92 RON gasoline crack against front month ICE Brent crude futures rose to $7.38/b April 6, the highest level since $8.59/b Feb. 13. However, the crack spread pulled back from the April peak, averaging $6.82/b to date in May, Platts data showed.

"India's consumer fuel demand is faltering fast and transportation fuel demand in other parts of Asia is under serious threat as well ... the gasoline cracks may lose its upward momentum as people mobility would be largely restricted," said a middle distillates marketing source at Malaysia's state-run Petronas.

The city state of Singapore also announced some tightening of rules on May 1 in response to an increase to COVID-19 infections, with the government urging citizens to restrict social gatherings.

At the same time, the Philippines remains in lockdown until May 14, while Indonesia, the region's largest buyer of gasoline, recorded its first cases of the highly infectious B1617 variant of the coronavirus on May 3, just as the country begins to ramp up travel ahead of the Eid al-Fitr festival.

The Eid al-Fitr festival, which is celebrated at the end of the Muslim holy month of Ramadan, typically sees driving activity in Indonesia peak with people heading back home to celebrate the festival with their families.

Driving activity

With new restrictions looming, evidence of the stalling gasoline demand can already be seen from a slowdown in regional driving activity, industry sources and analysts said.

Driving activity in Thailand for example, a country that on April 24 hit a record 2,839 new cases, has seen driving activity end April plummet to 56% below baseline levels, the lowest since May 2020, Apple mobility data showed.

"Thailand gasoline demand is inching back. They are not taking in as much gasoline as people are not as confident to come out due to the virus," a Thai-based source said.

Apple mobility data also showed that driving activity in South Korea, the Philippines and Hong Kong as of May 2 have also remained below baseline levels, a sign that the road to recovery for Asian gasoline demand is still a while away.

Supply increase

Increased supply and offers in the Asian spot market have also started to raise red-flags for regional participants.

Refineries in North Asia in particular are one of the reasons for this increased concern, as refineries in South Korea and Taiwan raise run rates and step up cargo offers in the spot market to take advantage of much improved gasoline cracks compared to 2020.

Taiwan private refiner Formosa Petrochemical Corp. in May was heard to have raised its run rates to 74% from 62% at its 540,000 b/d Mailiao facility, bringing back online a 84,000 b/d residue fluid catalytic cracking unit in May as well, Platts reported earlier.

Fellow refiner CPC Corp was also reported to have raised its run rates to 75% in end-April, with room to raise it higher should refining margins improve, Platts reported earlier.

Meanwhile, South Korea refiners are expected to export close to 7 million barrels of gasoline in May, up from the 6.6 million barrels in April and 5.8 million barrels in March, according to fuel marketing sources at three major South Korean refiners surveyed by Platts.

In addition, Chinese motor fuel exports are expected to rebound sharply from late Q2 when the holidays and the major refinery turnaround season are over, gasoline marketers and traders based in Singapore said.