* Gasoil cracks down 25% from September
* Indian gasoil exports surge due to weaker domestic demand
* IMO 2020 demand for gasoil likely to soak up excess supplies
By Koustav Samanta
SINGAPORE, Nov 14 (Reuters) - Asian refining profit margins for gasoil have plunged to their lowest in more than five months, weighed down by fresh Indian gasoil exports that have swelled already abundant supplies just 50 days before new ship fuel regulations kick in.
Market participants had widely anticipated a boost in gasoil margins in late 2019 as ship-owners switch out bunker oil for cleaner fuels such as marine gasoil (MGO) to comply with new sulphur emissions rules set by the International Maritime Organization for 2020. But the expected demand jump has not materialized yet as buyers delay purchases until absolutely necessary.
Refining margins or cracks for gasoil with a sulphur content of 10 parts per million (ppm) slumped to $14.27 a barrel over Dubai crude on Wednesday, the lowest since June 11.
The crack has dropped 25% since a recent peak of $19.14 in September.
“Refining margins are very poor at the moment and it’s negative for some,” said Sushant Gupta, downstream research director at consultant Wood Mackenzie.
“Shippers are waiting for the last moment to convert fuel tanks.”
The cracks have also declined in recent weeks as some regional refineries are returning to production after maintenance, while export volumes from state refiners in India have surged because of weaker domestic demand.
“A combination of higher refinery runs and weak demand growth will continue to push more gasoil out of India over this winter,” said Sri Paravaikkarasu, director for Asia oil at consultancy FGE.
India’s fuel demand growth is set to drop to its lowest in at least six years, while a slowdown in China’s industrial production growth is also raising doubts on fuel demand in the world’s second-largest economy.
Regional refineries are forecast to raise their processing rates in anticipation of rising refining margins in the lead-up to IMO 2020, FGE’s Paravaikkarasu said.
The 10-ppm gasoil crack for January is trading about $1 a barrel higher than December, indicating more demand for the fuel after the IMO 2020 change over.
Gasoil demand related to IMO 2020 should become more apparent in the coming weeks, offsetting the increased refinery runs, according the FGE and Wood Mackenzie.
FGE’s Paravaikkarasu believes the market is overestimating the amount that very-low sulphur fuel oil (VLSFO) will displace (MGO) in meeting the new clean bunker demand.
“The demand for MGO should also increase. Hereafter there will still be a group of shippers who would prefer MGO over VLSFO... This should lift the (gasoil) cracks by about $4-$5 per barrel before year-end from current levels”, she said.
Reporting by Koustav Samanta; Editing by Florence Tan and Christian Schmollinger