Lackluster gasoline, naphtha markets pummel Asian refining margins

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SINGAPORE (May 10): A weak light oil distillates market, awash in supplies, has sent Asia’s refining margin plunging below $3 a barrel this week for the first time since February, with no short-term rebound in sight for naphtha or gasoline.

With some refineries coming back on stream after outages or maintenance, coinciding with lower demand from Indonesia, the region’s top gasoline importer, Asia’s gasoline refining margin, or crack, dived 54 percent to $2.83 a barrel by Thursday compared with the start of the week.

The average gasoline crack for Jan. 2 to May 9 at $3.26 a barrel is the lowest for the same period since Reuters started tracking the data in 2008.

“The return to lower gasoline cracks is for us quite telling and means there is still plenty of pressure coming particularly from the supply side,” said Neil Crosby, Lead Downstream Analyst at JBC Energy.

Indonesia had stockpiled gasoline ahead of its April elections, but state oil firm Pertamina has since said it will raise high-octane gasoline production.

Meanwhile, Chinese gasoline exports are expected to stay high due to the country’s growing refining capacity.

Boosting supply, 90,000 tonnes of Norwegian gasoline also found its way to Singapore this month, data from Enterprise Singapore showed.

NAPHTHA WOES

Like gasoline, the average Jan. 2-May 9 naphtha crack, at $46.03 a tonne, was the lowest for the same period since Reuters started tracking the data in 2008.

“It has been pretty telling that naphtha failed to rally alongside gasoline in April, and that reflects a number of additional competitive pressures,” said JBC Energy’s Crosby.

A growing supply of alternative petrochemical feedstock like natural gas liquids (NGLs), including liquefied petroleum gas (LPG) and ethane, would also add to pressure on the naphtha market, said Crosby.

Overall, light distillates are the worst performing oil products in terms of margins in Asia.

Although the average 380-cst fuel oil cracks for Jan. 2 to May 9 stood at a discount of $5.14, that was the narrowest level for the same period since Refinitiv started tracking the value in 2012.

And the current average jet fuel and gasoil cracks are now higher than in the same period of 2017 and 2016.

“Middle distillates cracks are fine for now and likely refineries won’t run cuts,” said a trader who tracks gasoline and middle distillates.

One possible silver lining for light distillates may arrive later in the year. Feedstock meant for making gasoline could be used as a blendstock for low-sulfur marine fuel, as the global shipping industry embraces the latter in 2020 in a move to cut pollution, said Matthew Chew, principal oil analyst at IHS Markit.

New supplies from Malaysia may also be delayed following a fire at Petronas’ upcoming mega-scale refinery recently, industry watchers say.

“We expect commercial operation to be pushed back by about a quarter to account for the additional investigation and inspection works, to end 2019,” said Chew.