Firmer regional demand, refinery disruptions and reduced Chinese supplies have all combined to propel Asian gasoline margins to their highest level since December 2015.
The Asian gasoline margin, or the Argus 92R Singapore gasoline price against Ice Brent crude, has increased to $16.91/bl, the highest level since 14 December 2015 when it was $17.42/bl.
Margins had already been on the rise since the end of September with reduced shipments from key supplier China. But the supply tightness has been exacerbated by a sharp increase in spot buying from Indonesia and India.
The spot buying market was muted in the earlier part of this year with driving activity pressured by travel restrictions to curb Covid-19. But a sharp increase in driving activity following the lifting of these travel restrictions prompted multiple spot tenders to buy gasoline from the international market. Indonesia and India have issued a total of 37 tenders during September-October so far compared with 16 during January-August, according to Argus tender data.
Indonesia is forecast to buy about 350,000 b/d of gasoline during October and November compared with an average of 310,000 b/d for January-August this year. India is expected to import an extra 50,000 b/d for October and November despite not importing any cargoes during May-August. A shutdown at Indian state-controlled IOC's 300,000 b/d Paradip refinery also contributed to its increased import demand.
Fresh demand from Vietnam and Malaysia is also emerging, boosting the already firmer market. Vietnam has so far sought about 12,500 b/d of gasoline for October delivery with some of its spot tenders having immediate requirements, tightening the prompt market. Malaysia's demand has also received a boost after the government lifted the ban on interstate travel applied during its latest Covid-19 outbreak.
The extra 100,000 b/d of demand in this year's fourth quarter would be more manageable but a pullback in Chinese gasoline exports has further fuelled the tightness. Chinese exports fell to 205,000 b/d in this year's third quarter compared with 450,000 b/d in the first half. More of the Chinese exports have been going to other countries such as Pakistan and the Philippines instead of regular destination Singapore.
Some traders have blamed China for the higher gasoline values, but prices face a ceiling with Indonesia at the high end of import demand and refinery runs in India, South Korea and Japan starting to increase to capture the surge in refining margins and increased demand. The focus is still on China to see if its reduced exports are a structural shift in supply fundamentals or there could be another change ahead.
