Asian gasoil margins improve as lockdowns ease, but challenges remain

Asian refiners’ profits from gasoil have more than trebled from a record low seen in early May as demand recovers after sweeping lockdowns imposed to curb the COVID-19 pandemic, although refiners ramping up production after maintenance could cap gains, analysts said.

Refining profits for gasoil with 10 parts per million of sulphur in Singapore were at $6.29 a barrel over Dubai crude on Monday, up from a record low of $1.77 on May 5, Refinitiv data showed.

Gasoil spot premiums are hovering near their strongest levels this year, while traders believe that overall refining margins in the region will be supported as the worst is behind for the industrial fuel.

“Resumption in industrial activities and an improvement in road freight and transport needs will support a recovery in the third quarter gasoil demand in major economies,” said Sri Paravaikkarasu, director for Asia oil at consultancy FGE.

FGE expects gasoil demand in the second half of the year to rise by 600,000 barrels per day (bpd) from the first half, but still be 490,000 bpd lower compared with the same period a year ago.

“The region’s gasoil surplus should trend flat q-o-q at around 900,000 bpd in the third quarter and the second half (of 2020) should average at 840,000 bpd, down by 300,000 bpd compared to the first half of the year,” Paravaikkarasu added.

Graphic: Singapore ultra low-sulphur gasoil refining margin here

Despite recent gains, gasoil profits are still at their weakest seasonal levels on record, according to Refinitiv Eikon data that goes back to 2014.

“Refiners re-ramping up output does not bode well for the markets,” said Peter Lee, senior oil and gas analyst at Fitch Solutions.

Refineries in countries such as India, South Korea, Japan and Thailand, alongside Chinese refiners are expected to increase output starting this month as the easing of lockdown measures boosts demand for oil products.

“We see a severe overcapacity issue in the industry that has been brewing since last year, and has been exacerbated by the challenging demand environment this year,” said Kostantsa Rangelova, head of downstream at JBC Energy.

Reporting by Koustav Samanta; Editing by Florence Tan and Devika Syamnath

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