November 28, 2018 / 6:15 AM / 6 months ago

Asian gasoil refining margins skid to 4-mth low as China opens export taps

* Expected surge in Chinese fuel shipments weighs on cracks

* Despite the slump, margins remain seasonally high

* Singapore gasoil margins:

By Koustav Samanta

SINGAPORE, Nov 28 (Reuters) - Asian refining margins for gasoil slid to their lowest in four months on Wednesday, squeezed as traders brace for a flood of extra Chinese fuel hitting a region already awash in supplies at a time of unexpectedly lacklustre demand.

Refining margins - known as ‘cracks’ - for gasoil with 10 parts per million (ppm) sulphur content fell to $14.52 a barrel over Dubai crude on Wednesday, their weakest since Aug. 2.

The drop comes as the Chinese government gets set to release 2 million tonnes of additional fuel export quotas this year, taking total 2018 quotas to about 48 million tonnes.

This fuel, mostly gasoline and diesel, follows the release of 2.93 million tonnes of additional fuel a month ago. China’s diesel exports in October jumped to 1.44 million tonnes, up 40 percent from 1.03 million tonnes the previous month, according to customs data.

Adding to an already well supplied market, several Southeast Asian refineries came back on line in recent weeks after maintenance shutdowns. Worse, demand has been modest.

“The refineries are exporting a lot of gasoil but cannot find a home for each cargo,” said one middle distillate trader, declining to be named as that was against company policy.

“Normally during winter, we see a dramatic increase in gasoil demand, but this year we haven’t found out any such pattern yet,” she added.

A mild start to North Asia’s winter has resulted in relatively low demand for heating fuels, including oil and gas.

The benchmark gasoil margins have shed more than 20 percent in the last two weeks since hitting a four-year peak of $18.92 a barrel on Nov. 15. Still, they’re at their strongest levels for this time of the year since 2015.

The slump may not last as arbitrage opportunities from Asia to Europe will likely offer support to Singapore’s gasoil cracks, traders said.

Despite the recent fall, Singapore’s gasoil premium over Northwest Europe was around $32 per tonne on Wednesday, Refinitiv Eikon data showed.

The arbitrage is usually profitable from a spread of around $18 a tonne. At current clean tanker rates, the spread should be over $20 per tonne, according to Reuters calculations based on Refinitiv data.

“Continued shortage in the West will provide a floor from which the regional (Asian) crack can rebound,” a Seoul-based trade source said.

Europe is currently undersupplied with gasoil, with inventories held in the Amsterdam-Rotterdam-Antwerp hub down by over 30 percent in the last 1-1/2 months.

Reporting by Koustav Samanta Editing by Henning Gloystein and Kenneth Maxwell

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