The FOB Singapore 92 RON gasoline crack plunged to its lowest level in over 32 months as persistent oversupply in the Asia-Pacific region pressured down the market.
On Friday, the benchmark gasoline outright value over front-month ICE Brent futures weakened 62 cents/b to $1.66/b.
The crack was last lower on October 30, 2013, when it stood at $1.45/b.
Since last year, refineries have ramped up production of the automotive fuel as gasoline cracks rose to their highest level to date.
Average cracks for the 92 RON grade stood at $12.50/b in 2015, compared with $8.54/b the year before.
This year, cracks have averaged $9.20/b so far.
As a result, inventory levels have been high since the start of 2016, particularly as a relatively steeper contango made storage a viable option.
In Singapore, onshore stockpiles of light distillates have averaged 14.43 million barrels so far this year, up 2.126 million barrels from 2015's average.
In 2014, stockpiles averaged 11.504 million barrels.
Adding to the supply glut, China has been increasing production of gasoline, with the proportion of exports also on the rise.
Export quotas granted to Chinese refiners are sharply higher this year, with total quotas of gasoline at 10.765 million mt to date compared with a total of 6.735 million mt over 2015, and traders said that exports are likely to continue growing.
China's Sinochem International Oil, for instance, has issued a tender offering 60,000 mt of 92 RON gasoline for loading from Quanzhou or delivery into Singapore, Malaysia, or Vietnam over August.
This is more than its usual monthly tender volume of 35,000 mt out of its Quanzhou refinery. DEMAND DISAPPOINTS
While regional demand has been decent, with volumes largely stable on a month-on-month basis, import demand from key regional buyers over the peak demand season has failed to inspire confidence.
Indonesia, by far the region's largest importer of gasoline, typically bumps up imports ahead of the holy month of Ramadan, as domestic demand peaks over the period due to increased travelling.
This year, imports by state-owned Pertamina fell sharply to 8.84 million barrels in June and up to 10.2 million barrels in July.
Last year, Indonesia imported 11.3 million and 12 million barrels over June and July respectively.
The fall in imports was largely attributed to an increase in domestic production, as Trans-Pacific Petrochemical Indotama's 100,000 b/d condensate splitter and Pertamina's 62,000 b/d residue catalytic cracker in Cilacap both started operations in October 2015.
Elsewhere, global demand has not been as strong as hoped despite the peak summer driving season. In the US, the market was seeing ample supply overall over the summer, with demand unable to absorb all the surplus barrels.
Traders said that a number of cargoes were headed out of North Asia to the US, with the US West Coast still looking more fundamentally supported, but it was unlikely to have a big impact on the Asian market.
But market participants said that refineries were already starting to react to the slump in margins.
"I think refineries are cutting overall run rates, as well as producing more middle distillates instead of gasoline," a trader based in Singapore said.
The reduced gasoline output will help improve fundamentals gradually, although it might take some time for the reduced production to take effect, market sources said.
"I haven't seen the impact yet," said another Singapore-based trader.
