Asian gasoil timespread rises to 2019 high

The Asian gasoil prompt timespread has widened to the highest level so far this year on a string of refinery issues in Asia and expectations of low export volumes from China in the coming months.

The Singapore gasoil August-September timespread widened to $0.25/bl in backwadation on 16 July, with prompt prices at a premium to forward prices. The front-month timespread — the price spread between front-month and forward-month swaps — rose to $0.25/bl in backwardation based on Argus assessments.

Regional supplies have tightened recently because of a string of refinery problems across Asia-Pacific.

The continuous catalyst regeneration (CCR) unit at Indian state-controlled refiner Bharat Petroleum's 156,000 b/d Bina refinery joint venture with state-owned Oman Oil suffered minor issues over the past weekend, forcing the plant to bring forward a planned shutdown of its CCR and diesel hydrotreater units to next week from August, according to market participants.

The 460,000 b/d Jubail refinery operated by the Satorp joint venture between Total and state-owned Saudi Aramco could have reduced crude distillation unit run rates because of an unplanned shutdown at its 20,000 b/d reformer, said market participants. This is further tightening supplies in the Mideast Gulf region.

Reduced supplies from Satorp may have led Saudi Arabia's state-owned Aramco Trading to seek prompt gasoil from India and the Mideast Gulf to fulfil its supply commitments in the west of Suez, said traders.

Vietnam's 200,000 b/d Nghi Son refinery suffered some unspecificied issues in late June, causing the 105,000 b/d residue hydrodesulphurisation unit to run at low rates. The duration of the reduced runs remains unclear but it may last throughout July, said market participants. This could lead to a fall of around 33,000 b/d in gasoil production at the refinery in July.

Philippines' 180,000 b/d Bataan refinery has delayed its restart from mid-June to potentially mid-August following a planned turnaround, market participants said. This has led to more demand for gasoil imports into the country.

Expectations of lower Chinese export volumes in the coming months may also be supporting the prompt market. China may export 1.2mn-1.3mn t of gasoil in July and 1mn-1.1mnt in August, market participants said. But these volumes are down by around 19pc and 33pc, respectively, from the same months a year earlier. China's gasoil exports were at 1.54mn t (371,000 b/d) and 1.58mn t (380,000 b/d), respectively, in July and August 2018.

The lower expected export volumes in July and August this year could be a result of reduced run rates, partly because Chinese refineries are switching to maximising jet-kerosine over diesel production.

The strength in the gasoil market may not last in the long run, said traders. Demand in the Asia-Pacific region is stable while arbitrage opportunities between the Mideast Gulf and Europe remain difficult, with the gasoil east-west spreads staying at their highest level since October 2018.

Gasoil exports from India are also expected to increase during the monsoon season, which usually runs from June-October.