Asia Distillates: Gasoil reels under pressure as lockdown-mode India pumps out barrels
India uses much more diesel for personal transportation compared with other countries, which means demand there is likely to fall more than elsewhere and refiners would be pushing a higher share of their diesel output into the regional market
SINGAPORE: Asian refining margins for 10 ppm gasoil edged higher on Wednesday, but stayed within close sight of a record low hit in the previous session as traders expect more supplies to emerge from India, where an extended coronavirus lockdown continues to dampen domestic demand.
India uses much more diesel for personal transportation compared with other countries, which means demand there is likely to fall more than elsewhere and refiners would be pushing a higher share of their diesel output into the regional market, analysts said.
Two Indian gasoil traders said they expect Indian domestic demand to remain weak in May, which will continue the trend of Indian supply flooding the regional market.
“Demand in India is massively down, and of course the lockdown extension doesn’t help. But refiners there appear to be cutting runs on a substantial scale… having been arguably too slow to cut to begin with,” Kostantsa Rangelova, lead Asia analyst at JBC Energy said. Refining margins, also known as cracks for the benchmark gasoil grade with 10 ppm sulphur content in Singapore, were at $3.76 a barrel over Dubai crude on Wednesday.
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The cracks on Tuesday had slid to $1.77 a barrel over Dubai crude on Tuesday, the lowest on record according to Refinitiv Eikon data that goes back to January 2014. Cash discounts for 10 ppm gasoil GO10-SIN-DIF were at $1.49 per barrel to Singapore quotes on Wednesday, 3 cents wider from Tuesday.
Meanwhile, refining margins for jet fuel were at a discount of $4.24 a barrel to Dubai crude during Asian trade on Wednesday, compared with a record low of minus $7.23 a barrel on Tuesday. Cracks for the aviation fuel have crashed in recent weeks as airlines were forced to ground most of their flights due to coronavirus-led travel restrictions.
With the refining margins mostly in negative territory for over a month now, refiners have been cutting their jet fuel yields as much as possible to mitigate losses. “Jet fuel cracks have fallen sharply and for crude distillation units (CDUs), we’ve adjusted jet-fuel production mode,” Lee Dong-yeol, SK Energy’s head of corporate planning office, said on a call with analysts on Wednesday.
“Through adjustments, we are producing kerosene at the minimum level and blending kerosene with low sulphur fuel oil (LSFO). And these are the ways we’re responding to market conditions,” Lee added. Helped by a slight uptick in buying interest for physical cargoes on Wednesday, cash discounts for jet fuel narrowed to $3.58 a barrel to Singapore quotes, compared with $4.29 per barrel on Tuesday.