A string of planned refinery turnarounds in the Asia-Pacific will tighten supplies during March-April 2021, potentially supporting prices.
This is much-needed respite for the oil products market, which has been hit by an unprecedented demand destruction and an onslaught of supplies from refineries in China.
An upcoming heavy turnaround season in north Asia is expected to reduce cargo exports, said market participants. But most refineries will be shut partially and not completely. The refineries include major transportation fuel suppliers Taiwanese private-sector refiner Formosa Petrochemical's 540,000 b/d Mailiao refinery, South Korea's GS Caltex 800,000 b/d Yosu refinery, South Korea SK Energy's Ulsan refinery and Chinese state-controlled refiner CNOOC's 440,000 b/d Huizhou refinery.
China's domestic refineries, including state-controlled and independent ones, have scheduled heavy maintenance schedule during March-May. Market participants expect that 1.3mn-1.4mn b/d of Chinese refining capacity will be brought off line during March-April, which will provide relief to the weakness in domestic transport fuel demand during the lunar new year period.
The March and April gasoline and gasoil time spreads both flipped into backwardation at the end of January in anticipation of reduced supplies in March, said traders. A backwardated Dubai crude market has also lent some support to the oil products structure.
The March 92R gasoline swap against April swap moved to a $0.05/bl backwardation on 27 January before it was discussed higher at $0.15/bl in backwardation this week. The March gasoil 10ppm swap against April moved to positive territory on 1 February at $0.10/bl. The gasoline market structure has remained in contango since November 2020, while the gasoil market structure has been in contango since August 2020. Jet fuel refining margins, or its premium to Dubai swaps, have also recovered to $4.11/bl on 1 February from $3.11/bl on 7 January. Jet fuel output across refineries is expected to remain low at least for the first half of 2021 given the gloomy outlook for jet fuel demand.

