The prompt inter-quarter spreads for gasoil and jet swaps hit multi-year lows Monday, September 22, reflecting a struggling middle distillates complex as it grapples with low buying interest and a supply glut.
The prompt Q4 2014/Q1 2015 FOB Singapore 500 ppm gasoil swap timespread fell 5 cents/barrel from Friday to hit a 2-year-low of minus 96 cents/b Monday.
The last time the prompt inter-quarter differential was any lower was on August 22, 2012, when it was assessed at minus $1/b.
Meanwhile, the Q4/Q1 FOB Singapore jet/kerosene swap timespread was assessed 2 cents/b lower at a three-year-low of minus 96 cents/b Monday.
It was last weaker on June 30, 2011, when it was minus $1.16/b.
Industry sources said this weakness was likely a reflection of an anticipated increase in refining capacity in the Middle East and India by the year's end.
"The market is flush with supply, and there will be even more capacity in Q4 [2014]," a Singapore-based middle distillates trader said.
Yanbu Aramco Sinopec Refining Co. is set to startup its 400,000 b/d Yanbu refinery with an expected 263,000 b/d ultra low sulfur diesel yield at the end of the year, the same time that Indian Oil Corporation's 300,000 b/d Paradip refinery will begin operations.
The region has seen a steady decline in imports, following the startup of Saudi Aramco Total Refinery and Petrochemical Co.'s 400,000 b/d Jubail refinery in Q4 2013. UAE's Abu Dhabi Oil Refining Company, or Takreer, will also soon commission an expansion that will hike the capacity of its Ruwais refinery to 835,000 b/d, and it is expected to produce 123,000 b/d of diesel.
The expanded refinery is expected to begin production from its new units by the end of the year.
Increased exports from both India and China have added further pressure on the market. The monsoon season in India dampened domestic demand, leading refiners to offer more cargoes in the spot market.
Though details on total export volumes were not available, traders said that Essar Oil and MRPL had raised their exports for October, while Bharat Petroleum Corp. Ltd. was heard offering around 105,000 mt of gasoil for export recently, a first for the state-owned refiner.
Chinese refiners have also hiked their exports due to a fall in domestic gasoil consumption.
Data from the Chinese General Administration of Customs Monday revealed a year-on-year jump of more than five times in gasoil exports to 410,000 mt in August.
Meanwhile, jet exports over January-August rose 10.8%% year on year to 6.45 million mt.
Chinese domestic production of jet fuel/kerosene soared 21.7% year on year over January-July as refineries adjusted their yields in favor of jet fuel to cater to a growing aviation sector, and reduce the output of gasoil, which is facing a decline in demand due to the economic slowdown. In Southeast Asia, Vietnamese demand has been lackluster due to the country's sole refinery operating at full capacity for most of the year. Indonesian demand was largely stable though.
In the Middle East, the UAE's decision to change its motor fuel specifications from 500 ppm sulfur gasoil to 10 ppm sulfur has also removed a significant slice of demand from the spot market.
Industry sources, however, said they were optimistic that the market would rebound in the months ahead.
"Demand for [kerosene] heating oil in north Asia typically peaks in Q4, and that should strengthen the market [at the prompt and] throughout the rest of the curve," a Singapore-based broker said.
