Premiums for Asian light and medium-sweet crude grades have fallen in recent weeks due to weaker margins for refiners in Asia as a result of poor demand for middle distillates and naphtha, trading sources said Thursday.
"I would say margins [for refiners] have deteriorated by 10-15% just over the past couple of weeks," said a source with a refiner.
The front-month gasoil/Dubai swaps crack, for instance, has dropped by $3.37/barrel in two weeks and $5.27/b in three months to $17.39/b Wednesday. Front month naphtha/Brent cracks have been the hardest hit, falling $12.89/b to minus $11.23/b Thursday, from this year's peak of $1.66/b on January 5.
Premiums for sweet crudes rich in middle distillates and naphtha have fallen quite rapidly over the past two months.
North West Shelf condensate, which has a 67% naphtha yield, has slumped to minus $5.40/b to Dated Brent, compared with its high of a premium of 5 cents/b to Dated Brent quotes in early January this year.
The August loading Kutubu Light --which has 37% naphtha and 40% middle distillate yield -- has also traded lower with premiums dropping from the almost $5/b traded in July to the $4-4.50/b traded in August.
Kikeh, which has a 49% middle distillate yield, has also come off its highs of $8.92/b to Dated Brent on April 11 to $7/b to Dated Brent on Wednesday.
"I think the premiums are going to soften further with margins going down. Also, with West African grades being cheaper and freight rates low, that will put pressure on medium-sweets in Asia," said a trader.
Demand for gasoil has slowed in Asian countries like Vietnam due to high inventories and the monsoon season, while demand for naphtha and petrochemicals have been hit due to excess supply.
While Chinese refiners have cut June crude runs by 4 points to 82%, other are maintaining the run rates for now, trading sources said.
"Refineries are maintaining runs for now but will not hesitate to cut if margins continue to be depressed for the next two months," said a trading source.
Meanwhile, with the flat price for Brent futures rising over the past few days, the situation could change rapidly with cracks for middle distillates on the rise again.
