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Analysis: Vietnam's returning motor fuel appetite to lead Asia's demand recovery


Vietnam's motor fuel demand to maintain upward trajectory

Tight S Korean supply in June to shift attention to regional markets

Vietnamese demand to ease supply-side pressures

An uptick in inquiries by Vietnamese buyers of motor fuel have lifted sentiment in the Asian gasoline and gasoil markets, providing participants with a potential outlet for excess cargoes in the near term, so as to take the pressure off the currently oversupplied markets.

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The buying interest is underpinned by the resumption of economic activity in Vietnam, which has started to normalize toward pre-coronavirus levels, a month after the Southeast Asian nation lifted movement restrictions at end-April. According to Apple mobility data, driving and movement in Vietnam has spiked back up to levels seen in February, recovering from an almost 60% fall in March.

The severe impact of the decline in driving activity was highlighted when Vietnam's refiner Nghi-Son Refinery, in a rare move, emerged to sell around 500,000 barrels of 95 RON gasoline in March, in an attempt to offset high domestic supplies.

Further pressuring domestic balances, the nation's second refinery, the 148,000 b/d Dung Quat, was forced to postpone maintenance plans to September, from June, as travel restrictions hindered the entry of foreign experts required to assist in the plant's turnaround.

Struggling with heavy stockpiles, state-owed PetroVietnam in April proposed that the government curbed the import of oil products to help local refineries, citing that "stockpiles of gasoline rose to more than 90% of storage capacity," Platts reported previously.

The Vietnamese government subsequently rejected the proposal in mid-May, deeming it "unfeasible", local media reported.


Nevertheless, the reversal of supply-demand dynamics in Vietnam comes at an opportune time, with more than ample availability of gasoline cargoes in Asia, industry sources noted.

"Traders in the region [Asia] are holding to supply. There is a slight contango, but now it is more feasible to shift cargoes out of tanks, if the price is good," one Singapore-based market source said.

At the Asian close on June 2, the front month 92 RON gasoline time spread stood at minus 50 cents/b, recovering significantly from the record low of minus $3.60/b on April 13, Platts data showed.

In addition, June will be the start of heavy turnaround at South Korean refiners, with SK-Energy and S-Oil taking units offline for scheduled maintenance .

Vietnamese buyers traditionally opt for cargoes of South Korean origin due to tax incentives stemming from Form KV -- a bilateral agreement between both countries, allowing cargoes originating from South Korea to be exempted from Vietnam's import tax.

"South Korean exports in June is low. If spot volume from Vietnam increases, this might be a potential opportunity should they [Vietnam] seek cargoes from non-Korean sellers," another gasoline trader said.

According to open tenders seen by Platts in May, Vietnam's Petrolimex and PV Oil have thus far sought a total of at least 1,643 million barrels of gasoline for late-May and early June delivery, in contrast to none in April.

"We are anticipating an uptick in [gasoline] demand in June. Things are still 'wait and see' on how much spot volume is needed, but demand has certainly recovered [from April]," a source with a Vietnamese company said.


In the gasoil market, prices for the middle distillate have also received a boost stemming from an uptick in demand from Vietnam.

"[Supply of] the 500 ppm sulfur gasoil grade has been tight due to very strong demand from Vietnam. I haven't heard of any supply issues from Vietnam's domestic refineries, it's just that demand is coming back and importers are buying in anticipation," a source with a European trading house said.

Vietnam's gasoil imports more than doubled in April, from the prior month, to 400,096 mt as it turned to international markets to meet demand after it shook off coronavirus-imposed containment measures.

Market sources said the rise in gasoil imports may be due to the country replenishing stocks after it halted the inflow of gasoil in previous months given the high domestic stockpiles.

The pull for cargoes from Vietnam, as well as other Southeast Asian countries, combined with tighter regional supply balances have shored up Asian gasoil values, with the complex leaping back into a backwardated structure this week, while cash differentials climbed into premium territory.

At the Asian close on June 2, the cash differential for FOB Singapore 10 ppm sulfur gasoil cargoes was assessed 4 cents/b higher at plus 21 cents/b to the Mean of Platts Singapore gasoil assessments, while the balance June/July gasoil swap timespread was assessed at plus 14 cents/b, down 11 cents/b on the day.