Asian gasoil refining margins drop to lowest so far in 2019

Key Asian gasoil refining profit-margins fell to their lowest levels this year as crude oil prices surged and demand for the industrial fuel remained sluggish amid plentiful supply.

Refining margins, also known as cracks, for gasoil with 10 parts per million (ppm) sulfur content dropped as low as $13.09 a barrel over Dubai crude during Asian trading hours, the lowest since Dec. 28, Refinitiv Eikon data showed.

The cracks for the Singapore benchmark gasoil grade, which have shed about 15 percent over the last two months, were at $13.35 a barrel on Thursday. The markets were closed on Friday for a public holiday.

Crude oil prices rallied by about 3 percent on Monday to their highest since late 2018 as the United States looked set to announce that all imports of Iranian oil must end or be subject to sanctions.

The gasoil market has taken a beating in recent weeks due to the availability of barrels in the region, with spring refinery turnarounds failing to tighten supply as much as had been expected, trade sources said.

“I see gasoil refining margins heading south. If even the impending (refinery) shutdowns in India and the shutdowns in the United States cannot keep them propped up, I don’t see much hope for the cracks once these refineries get back on stream,” said Sukrit Vijayakar, director of energy consultancy Trifecta.

Gasoil refining margins are currently about 15 percent lower than at the same time in 2018, Refinitiv Eikon data showed.

“I don’t see many bullish factors in the gasoil market right now. So, I guess this trend will continue for several more months,” a Singapore-based trader said on Monday.

However, upcoming regulations on marine fuel will likely bring some support to the overall margins for middle distillate gasoil, market watchers said.

The International Maritime Organization (IMO) is introducing new rules on marine fuels from 2020, limiting the sulfur content to 0.5 percent from 3.5 percent, to curb pollution from ships.

“The second quarter of 2019 looks like a tough time for diesel bulls ... Beyond the second quarter lies the world of IMO 2020, which should see marine gasoil (MGO) demand in 2020 rise by 2 million barrels per day from 2018 levels,” consultancy Energy Aspects said in a monthly note.

“Furthermore, bunker sellers will need to hold some inventory to meet demand by Q4 19, as many ship owners are expected to begin shifting to the new compliant fuels by then. That means commercial stockbuilding for MGO demand could begin in late Q3 19.”

Reporting by Koustav Samanta; Editing by Joseph Radford


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