Asia’s front-month regrade (a measure of jet fuel’s relative strength to gasoil) recently eased from last Thursday’s 19-month high of $1.58/bbl but remains relatively strong at $1.32/bbl. While the surge in the Asian regrade can be partly attributed to seasonality during the winter heating oil demand season, the bulk of support is coming from the ongoing slump in the gasoil market.
Regional refineries have been running hard on the back of robust refinery margins as well as the end of turnaround season, flooding the market with excess supplies. Unusually high diesel exports from India despite the end of monsoon season have added length to an already-pressured market. The jump in Indian gasoil exports can be attributed to Indian Oil’s 300 kb/d Paradip refinery running at full capacity as well as the ramp-up of BPCL’s 310 kb/d Kochi refinery and HMEL’s 230 kb/d Bathinda refinery after recent expansions.
Sentiment in the Asian high sulfur gasoil market weakened further after the release of a new batch of Chinese export quotas as well as China’s domestic ban on diesel with sulfur content greater than 10ppm, which are likely to result in higher exports of high sulfur diesel. The increase in cargo demand is reflected in the firm North Asian MR segment. Rates for a South Korea/Singapore run basis 40 kt are currently assessed at $460,000, 13% higher than at the start of the month.
An increasingly narrow gasoil EFS and relatively high freight rates have closed the arbitrage window to Europe, leaving Singapore as one of the few viable outlets for excess barrels. As such, onshore middle distillate inventories in Singapore stood at 11.55 mmb for the week ending November 9, up by 9.7% m-o-m.