Refinery run cuts help tighten supply

Asian refining margins for gasoil have climbed to their highest in eight months as some regional refinery issues and run cuts have tightened supplies, while firmer domestic demand in South Korea has led to a drop in exports from the country.

Strong margins for middle distillates have underpinned overall profits for Asian refiners. Gasoil margins are also expected to find support from demand to meet new rules requiring lower sulfur for ship fuel that will likely consist of low-sulfur gasoil.

Refining margins, also known as a crack spread, for gasoil with 10 parts per million (ppm) sulfur content rose to $17.06 a barrel over Dubai crude on Monday, their highest since Nov. 19.

Cracks for the benchmark gasoil grade, which have soared over 21% since end-May, are currently at their strongest seasonal levels in the past six years, Refinitiv data showed.

“Singapore inventories are lower, Vietnam’s Nghi Son oil refinery is operating at reduced rates, while Philippine oil refiner Petron’s come-back has got delayed,” a Seoul-based trader said.

“Petron refinery started turnaround in early May and was supposed to come back to normal by June, but is not back yet. Also, exports from Korea might be lower in August due to tax issues. Even if small individually, the impact could be substantial when all these are united,” he added.

A Petron Corp trader based in Singapore refused to discuss the refinery turnaround when contacted by Reuters because the matter is confidential.

The Nghi Son oil refinery was restarted earlier this month after the plant’s fluid catalytic cracking unit went down, disrupting operations at the 200,000-barrel-per-day refinery.

South Korean consumers are ramping up gasoil purchases before an ongoing tax cut on transportation fuel in the country expires in August, two gasoil traders and a broker said.

South Korea had initially cut domestic transport fuel taxes by 15% for six months in November, later extending the cuts for four months but lowering it to 7%.

Gasoil exports from South Korea in June were at 1.9 million tons, about 8% lower from May, Refinitiv data showed. June gasoil exports from Japan and India were also down about 54% and 4%, respectively, from the previous month.

Meanwhile, Singapore middle distillate stocks eased to a two-week low of 10.7 million barrels in the week to July 17, Enterprise Singapore data showed on Thursday.

The gasoil margins, however, might briefly lose steam over the next few weeks as India and China are expected to export more supplies, at least two Singapore-based middle distillates traders said on Tuesday.

Diesel demand typically takes a hit during monsoon months in India as heavy rainfall and floods curtail demand for the transportation fuel, while China’s crude throughput has climbed to a record in June, following start-up of two new, large refineries.