January 20, 2020 / 11:19 AM / a month ago

Asia Distillates-Gasoil cash premiums edge lower, front-month spread widens

    SINGAPORE, Jan 20 (Reuters) - Asia's cash premiums for 10 ppm gasoil edged lower on Monday,
hurt by weaker deals in the physical market, but the front-month spread for the transportation
fuel widened its backwardation amid expectations for strengthening near-term demand.
    Cash premiums for 10 ppm gasoil GO10-SIN-DIF were at 15 cents per barrel over Singapore
quotes on Monday, down from 17 cents per barrel on Friday.
    Refining profit margins for gasoil with 10 ppm sulphur content climbed 14
cents to $12.55 per barrel over Dubai crude during Asian trading hours, but still within close
sight of an eight-month low of $12.27 touched last week.
    Refining margins, also known as crack spreads, for the Singapore benchmark 10 ppm gasoil
grade have slumped 22% so far this year amid steady regional supplies of the distillate fuel,
while the market has not seen any major boost in demand from new regulations for cleaner marine
fuels.
    The gasoil market was expected to benefit from a section of ship-owners switching to marine
gasoil (MGO) in order to comply with International Maritime Organization (IMO) rules that
prohibit ships from using fuels containing more than 0.5% sulphur. 
    But in the fuel switch so far, very low sulphur fuel oil (VLSFO) has outperformed market
expectations.
    Singapore bunker sales in December jumped to 4.5 million tonnes to the highest since January
2018 as demand for low-sulphur fuel strengthened in the backdrop of the new ship fuel rules.

    The incremental demand for gasoil due to IMO 2020 would likely pick up over the next couple
of months but with a much lesser scope than expected earlier, industry analysts said.
    The February/March time spread traded at a premium of 35 cents per barrel on
Monday, 13 cents higher from Friday, Refinitiv Eikon data showed.
    Backwardation, when the front-month contract is more expensive than subsequent months, makes
it uneconomical to store the product, resulting in a drawdown in inventories. It is usually seen
as a sign that the market is rebalancing and prices are likely to head higher in future months.
    Meanwhile, cash premiums for jet fuel JET-SIN-DIF rose to 28 cents per barrel over
Singapore quotes on Monday, compared with 19 cents per barrel on Friday.
    Refining profits for jet fuel were at $12.03 per barrel over Dubai crude on
Monday, compared with Friday's $11.86 per barrel.
    
    GLOBAL DISTILLATE CRACKS PLUMMET ON WEAK DEMAND
    - Margins to refine crude into distillates like heating oil and diesel have slumped around
the globe due to disappointing demand, prompting speculation that some refiners could start to
reduce processing rates.
    - In the United States, imports from markets including Europe have boosted supply, while
milder weather has undercut distillate demand, which typically rises during winter. That is
oversaturating the market, especially in the Northeast - the world's biggest heating oil market
- where inventories are already high. 
    - European diesel margins LGOc1-LCOc1 fell below their 10-year average for this time of
the year to $11.39 a barrel on Friday.
    
    SINGAPORE CASH DEALS
    - Four gasoil trades, three jet fuel deals.
    - For more information, click
    
    OTHER NEWS
    - Oil prices rose to their highest in more than a week on Monday after two large crude
production bases in Libya began shutting down amid a military blockade, setting the stage for
crude flows from the OPEC member to be cut to a trickle.
    - India's imports of Middle Eastern oil plunged to a four-year low in 2019, tanker data
obtained from sources shows, as the energy-hungry nation diversifies its supplies to cut costs
and help shield itself from geopolitical tensions. 
    India, the world's third-biggest oil consumer, imports about 84% of its oil needs and
traditionally relies on the Middle East for the majority of its supplies.

    
    ASSESSMENTS    
 MID-DISTILLATES                                                                           
 CASH ($/T)               ASIA CLOSE       Change   % Change   Prev Close   RIC
 Spot Gas Oil 0.5%                  74.44     0.92       1.25        73.52  GO-SIN
 GO 0.5 Diff                        -2.08     0.04      -1.89        -2.12  GO-SIN-DIF
 Spot Gas Oil 0.25%                 75.15     0.92       1.24        74.23  GO25-SIN
 GO 0.25 Diff                       -1.37     0.04      -2.84        -1.41  GO25-SIN-DIF
 Spot Gas Oil 0.05%                 76.29     0.92       1.22        75.37  GO005-SIN
 GO 0.05 Diff                       -0.23     0.04     -14.81        -0.27  GO005-SIN-DIF
 Spot Gas Oil 0.001%                76.67     0.85       1.12        75.82  GO10-SIN
 GO 0.001 Diff                       0.15    -0.02     -11.76         0.17  GO10-SIN-DIF
 Spot Jet/Kero                      76.27     1.00       1.33        75.27  JET-SIN
 Jet/Kero Diff                       0.28     0.09      47.37         0.19  JET-SIN-DIF
                                                                                           
 For a list of derivatives prices, including margins, please double click                  
 the RICs below.                                                            
 Brent M1                                                                                  
 Gasoil M1                                                                                 
 Gasoil M1/M2                                                                              
 Gasoil M2                                                                                 
 Regrade M1                                                                                
 Regrade M2                                                                                
 Jet M1                                                                                    
 Jet M1/M2                                                                                 
 Jet M2                                                                                    
 Gasoil 500ppm-Dubai                                                                       
 Cracks M1                                                                  
 Gasoil 500ppm-Dubai                                                                       
 Cracks M2                                                                  
 Jet Cracks M1                                                                             
 Jet Cracks M2                                                                             
 East-West M1                                                                              
 East-West M2                                                                              
 LGO M1                                                                                    
 LGO M1/M2                                                                                 
 LGO M2                                                                                    
 Crack LGO-Brent M1                                                                        
 Crack LGO-Brent M2                                                                        
 
 (Reporting by Koustav Samanta; Editing by Anil D'Silva)
  
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