Singapore — The Asian middle distillates arena lost steam in the third week of November, led by weaker fundamentals as a result of lackluster demand coupled with expectations of warmer winter temperatures.
In the Asian gasoil market, the benchmark FOB Singapore 10 ppm sulfur gasoil was hit by poor demand, and traders said that the region has been struggling to absorb supplies following the restart of refineries in Japan and Taiwan from maintenance.
The front-month December/January market structure for gasoil flipped into a contango structure at the Asian close Friday, the first time in almost four months, S&P Global Platts data showed.
The December/January gasoil spread was assessed at minus 1 cent/b, down 9 cents/b from Thursday. The spread was last in contango on July 20, 2018, when it was assessed at minus 1 cent/b.
Meanwhile, the Q4/Q1 timespread dipped 3 cents/b over the week to be assessed at plus 10 cents/b Friday.
The outlook for ultra-low sulfur gasoil grade also looked bleak on the back of poorer demand amid ample supply levels.
"I think demand took a hit in North Asia, and also supply is healthier due to the [North Asian refineries] returning from turnaround," a trader said last week.
Market participants said that poorer gasoil demand was being seen from Taiwan and while flows to Australia had been steady, demand there might soften as companies may keep inventory levels lower for the year-end financial reporting process, trading sources said.
Supply meanwhile, has been seen at ample levels.
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"There's lots of gasoil floating around and we can't expect much strength soon ... November shall remain this way and we're unlikely to see any uptick," a source said last week.
To that end, the cash differential for FOB Singapore 10 ppm sulfur gasoil fell to a discount of minus 2 cents/b to the Mean of Platts Singapore Gasoil assessments at the Asian close Friday, down 5 cents/b from Thursday.
This is the first time in nearly four months that the cash differential for the Asian benchmark gasoil grade has fallen into negative terrain.
Platts data showed that the FOB Singapore 10 ppm sulfur gasoil grade was last in discount on July 25, 2018, when it was assessed at minus 2 cents/b to MOPS Gasoil assessments.
The discount was last deeper on July 24, 2018, when it stood at minus 4 cents/b to MOPS Gasoil assessments, FOB Singapore.
WINTER FAILS TO LEND MOMENTUM TO JET
Meanwhile, jet fuel market sentiment weakened in spite of the peak winter season as warmer temperatures are expected.
FOB Singapore jet/kerosene cash differentials flipped back into discount territory on Friday.
S&P Global Platts assessed the jet fuel/kerosene cash differentials 28 cents/b lower day on day at a two-week-low of minus 11 cents/b on Friday. The last time it was assessed lower was on November 9 at minus 33 cents/b.
While jet fuel/kerosene demand typically hits its annual peak from November-February, traders said that demand this winter has been unusually lackluster.
"Japan is still so warm, demand is not there yet," a North Asian refiner said.
For the first time in 132 years, snowfall in the low lying areas of Hokkaido has not occurred by November 15, according to a report by the Japan Weather Association.
The Japan Meteorological Association forecasts that Hokkaido will face a 60% probability of experiencing warmer-than-average weather over November 17-December 16. Hokkaido is the country's single largest consumer of kerosene as a heating oil in the winter.
Other market participants however characterized the weakness in jet as a supply-side issue.
"Japan's stocks are still ample, and not much refining capacity there is undergoing turnarounds now," a Singapore-based trader said.
According to the Petroleum Association of Japan's latest data, kerosene stocks there stood at 17.64 million barrels in the week ended November 10 -- 11.4% higher year on year.
A North Asian refiner said that the emergence of Chinese spot cargoes has also contributed to supply. "Still quite a lot of Chinese barrels coming out," they said. "North Asia spot [market] is very competitive now, a lot of supply," a Singapore-based trader said.
Beijing awarded a third tranche of oil product quotas in October, granting five state-run companies 1.6 million mt of jet and 590,000 of gasoil export quotas for the rest of the year.
In the derivatives market, the front month December jet fuel/ kerosene swaps was assessed at $84.72/b Friday at the Asian close, marking a $4.72/b fall since the beginning of the week.
Meanwhile, the quarterly Q1/Q2 jet fuel/kerosene spreads fell 7 cents/b since the start of the week to be assessed at 35 cents/b Friday.
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