Singapore gasoil margins hit record low as supply rises

Singapore gasoil refining margins have fallen to a record low as refiners ramp up production of the fuel to compensate for slumping jet fuel demand.

The Singapore gasoil refining margin, or the premium of Argus Singapore 10ppm gasoil to Dubai crude swaps, fell to a record low of $2.45/bl today from $3.10/bl yesterday, according to Argus assessments. This is the lowest margin since at least July 2006.

Margins have come under pressure as Asia-Pacific refiners maximise gasoil over jet fuel yields. Gasoil and jet fuel are both middle distillates, so lower yields of one product tend to raise output of the other. Jet fuel demand has been slashed by restrictions on air travel imposed to curb the spread of the Covid-19 pandemic, encouraging refiners to cut output of the product.

A persistent overhang in European gasoil stocks has also limited arbitrage opportunities to ship gasoil cargoes to Europe, instead keeping excess supplies largely within Asia-Pacific.

The drop in margins comes as Asian gasoil prices fall below gasoline for the first time in two years, because of rising gasoil supplies and strengthening gasoline demand as regional driving activity picks up.

The Argus Singapore 10ppm (0.001pc) gasoil price fell to a discount of $0.20/bl to the Argus Singapore 92R gasoline price in early September. The discount has since widened to $1.82/bl today.

Gasoil was the only transportation fuel that managed to maintain positive margins during the peak of the Covid-19 crisis earlier this year, thanks to demand from the industrial sector and road freight. But prices have now started to weaken because of an onslaught of supplies and subdued regional demand.

By Yawen Lu