The front-month timespread for Singapore 500 ppm sulfur gasoil swaps on Friday strengthened to its highest in nearly five months, as spot supply of the middle distillate tightened on reduced production and firm demand.
The May/June spread was assessed at 11 cents/b Friday, inching up 1 cent/b after flipping into a backwardation of 10 cents/b Thursday. The front-month spread was last wider on November 30, 2015, when it stood at 24 cents/b, Platts data showed.
Similar strength was also seen in the Q3/Q4 timespread, which was assessed at a 10 month-high of minus $1.28/b. The last time the prompt quarterly timespread was assessed any higher was on June 10, 2015 at minus $1.23/b.
The physical cash differential of the benchmark grade also firmed Friday, to a premium of 5 cents/b to Mean of Platts Gasoil assessments, after flipping into a premium of 4 cents/b from a discount of 1 cent/b the previous day. The cash differential was last higher on December 30, 2015, at 8 cents/b to MOPS Gasoil.
"The market is very tight, especially on the prompt," said a gasoil trader in Singapore.
FIRM DEMAND
Steady to higher demand from regular importers in the region have been mopping up surplus barrels, keeping the market supported.
"Demand from Vietnam, Sri Lanka, Philippines and India is good," said a middle distillates trader based in Singapore.
So far Indian demand has seen an unusual pick-up in buy tenders.
Indian Oil Corporation, after a multi-year absence in the spot market, has bought 411,000 mt high speed diesel for both April and May delivery. Of this, 100,000 mt of 320 ppm sulfur gasoil, in addition to 123,000 mt of 40 ppm sulfur grade, are for delivery over the first half of May, and 94,000 mt each of 320 ppm sulfur gasoil and 40 ppm sulfur gasoil are for delivery over April.
"Indian tenders play a part too, since 500 ppm can be used as blendstock to fulfill 320 ppm sulfur gasoil requirements," another Singapore-based trader added.
Vietnam's Petrolimex on Friday issued a second tender seeking 70,000 mt of 500 ppm sulfur gasoil for loading over May 1-5 and May 10-15, in addition to the 70,000 mt of the middle distillate already purchased for similar dates.
Petrolimex similarly bought a total of 140,000 mt of 500 ppm sulfur gasoil for April loading. The state-owned company typically buys 70,000-140,000 mt a month.
Traders also pointed to the upcoming summer period, which sees domestic gasoil demand in Saudi Arabia spiking as air conditioning use increases along with the temperature.
"We might start seeing some stockpiling ahead of that," said a gasoil trader in the region.
REFINERY TURNAROUNDS
Scheduled refinery turnarounds in Asia and the Middle East have also reduced the supply of gasoil barrels in the region, sources said.
The turnaround season in Asia usually stretches over the second quarter of the year, in preparation of peak demand for products over summer.
India's Reliance Industries, for one, plans to shut one of the two 290,000 b/d crude distillation units at its export-oriented 29 million mt/year (580,000 b/d) SEZ refinery in Jamnagar for three weeks of maintenance and inspection starting May 1, Platts reported earlier.
In China, Sinopec Wuhan has shut its 160,000 b/d refinery for a full turnaround over April 8-May 27, while Sinopec Zhenhai will also be carrying out the second phase of maintenance starting late April, for around 45 days. Among the units to be shut during this period include the 10 million mt/year No. 3 CDU.
While South Korea's GS Caltex and Taiwan's Formosa have completed their scheduled partial turnarounds in April, the refineries still have limited spot gasoil cargoes for May, reserving most barrels for term buyers.
Both Northeast Asian countries are key suppliers of the 500 ppm sulfur gasoil grade to Singapore.
Reflecting the slowdown in gasoil imports into Singapore, onshore stockpiles of middle distillates in the city-state fell 823,000, or 6.65%, to 11.56 million barrels as of April 20, the lowest level in 10 weeks, according to latest data from government agency International Enterprise Singapore. Inventory levels were last lower on February 10 this year, when it stood at 10.714 million barrels.
CHINA EXPORTS UNCERTAIN
But China's domestic demand is expected to slow starting in the second half of May as the annual fishing ban in the South China Sea kicks in, which could add some downside pressure to the market, industry sources said.
Traders were mixed about the impact of the likely decline in demand from one of the region's biggest consumers of gasoil.
"I think exports [out of China will] remain steady," said a middle distillates trader based in Singapore, adding that the refinery turnarounds in China is likely to offset any fall in demand.
