Price differentials for February-loading middle distillate-rich Malaysian and Vietnamese crude grades are expected to strengthen amid an improvement in margins and bullish sentiment on stronger demand from India and China, industry sources told S&P Global Platts, although some remained skeptical about the sudden uptick and indicated it may not be sustainable in the short-term.
"Directionally, February-loading Malaysian grades should trade at premiums of around 30-50 cents/b higher than January," a Singapore-based crude trader said.
Price of Malaysian and Vietnamese medium sweet grades have strengthened rapidly as trade indications exceeded earlier expectations.
January-loading flagship crude cargoes from Malaysia including Kimanis and Labuan -- rich in middle distillate -- were heard traded at premiums of around high-$1s to mid-$2s/b to Platts Dated Brent, FOB, while a second cargo of end-January loading Labuan was heard discussed even higher at around Dated Brent plus $2-$2.50/b on an FOB basis, traders said.
The traded level heard was much higher compared with valuations last located for Kimanis, which were at around $1/b above Dated Brent, FOB, while December-loading Labuan cargoes traded at around Dated Brent plus 60-80 cents/b on an FOB basis, traders said previously.
Meanwhile, January-loading Vietnamese grades including Ruby, Chim Sao and Bunga Kekwa also traded at premiums of around $1.25-$2/b to Platts Dated Brent, FOB, in November.
In comparison, December-loading Chim Sao and Ruby were heard to have traded at Dated Brent plus around 60-65 cents/b, FOB, while Bunga Kekwa traded at a discount of around 50 cents/b to Dated Brent, FOB, last month.
"Actually, the level done [for Chim Sao] is still considered reasonable... Ruby is the one that is crazy [high] at $2/b to Platts Dated Brent," a Southeast Asia-based crude trader said.
Another regional crude trader said sellers had gotten very aggressive, but fundamentally it made little sense.
"Recent strength in the Middle Eastern crude market has come mostly in anticipation of higher Chinese and Indian end-user demand. However, Southeast Asian demand is still not picking up fundamentally," the first trader added. " Thailand, Singapore and Australian refiners are still struggling with their product stocks and refining margins."
CRUDE INTEREST SUPPORTED ON FIRMER MIDDLE DISTILLATE SENTIMENT
But some market participants said that strong expectations for the February program have found support in the underlying Singapore middle distillate cracks in recent weeks.
The second-month gasoil crack against Dubai swap strengthened to a four-month high of $5.52/b on Oct. 26, data from S&P Global Platts showed. Meanwhile, the second-month jet fuel swap crack versus Dubai swap averaged $3.11/b in November so far, the highest since March, when it averaged $4.89/b, the data showed.
Asian middle distillate sources said that the jet fuel/kerosene market has found firmer ground in recent weeks, boosted by stronger heating oil demand in North Asia due to lower- than-average temperatures during the winter season, while the gasoil market has been on an uptrend since second-half October, with tightening supply balances spurring much of the improvement in the complex.
For the latter product, a sustained period of refinery run cuts due to dismal margins has resulted in lean resupply volumes being seen from major North Asian gasoil suppliers over the past few months, while a steady number of newbuild VLCCs have been seen moving Asian gasoil barrels out of the region and towards the West, thereby helping to clear the overhang in the East, market participants said.
Traders also said that lower-than-expected gasoil export volumes from China for December, estimated to be around 1.1-1.2 million mt -- representing a supply drop of around 30% from November export volumes -- have also worked to firm sentiment.
In addition, while the pace of the demand recovery in Asia is still seen as fragile due to a COVID-19 resurgence, sources said consumption readings remain largely steady for the moment, propped up by stable demand for gasoil from Australia, some fresh requirements from Southeast Asian countries following the end of the monsoon season, as well as a pick-up in demand from India.
In a report released late Nov. 27, S&P Global Platts Analytics said the key support for the Asian gasoil market remains persistent low refinery run rates despite the start of the traditional peak winter season.
"Recently announced refinery unit shutdowns in Taiwan may further tighten regional gasoil supply. Gasoil accounts for the bulk of Taiwanese product exports, which were already down by about 45% year-on-year before these latest outages," the report said.
