Asia oil/products: Crude retreat continues, refining margins tank

Quantum Commodity Intelligence – The new trading month brought little relief for Asian oil markets Thursday as the downtrend continued, while in Asia, physical gasoline cracks turned negative on greater supply, diesel cracks tanked on lower gas prices and marine fuel cracks neared zero.

Dubai cash for November delivery was assessed at $93.96/b for 1 September (1630 Singapore time), down $1.49/b on the day, while DME Oman futures were down $1.45/b at $93.74/b for the Nov22 contract.

The partials market got off to a slow start with zero transactions reported on day one of the new trading month, while the key medium sour grades within the Dubai basket were all pegged around parity.  

Oman, Upper Zakum and Al Shaheen were valued at Dubai swaps plus around $4.75-$4.85/b, an improvement on last month when premiums dipped to around $4/b a one point.

Dubai continued to gain on Brent, as Asian gasoline cracks slumped amid demand slowdown fears, and continued to eat away at light sweet grades.

ICE Brent futures for Nov22 were valued at $94.18/b at 1630pm Singapore, down $2.11/b from the previous Asia close for the same month, as Nov22 Brent/Dubai cash spread crunched to just $0.22/b versus Wednesday's $0.84/b.

The Nov22 EFS was slightly lower, trading in the low $6s/b at the Asian market-on-close.

Super typhoon Hinnamnor, the strongest global storm of 2022 to date, is gathering pace across the South China Sea and already impacting on shipping and bunkering, with the potential to also threaten refinery operations.

Products

The day-on-day fall in crude benefitted naphtha cracks with refining margins versus Brent rising for the second straight day. In the physical market, there was a tight bid and offer spread for 1H Nov cargoes at $636/mt from Glencore versus $639/mt offered from BP. The market remains in a mild contango versus backwardation in crude, leaving paper cracks in a sharp contango. Physical cracks were up around $2/b for the second successive day. September swaps were pegged at $20/mt over Europe, up $1/mt on the day.

The gasoline cash market was thinly bid and offered and no deals were reported but paper cracks fell again and are now firmly in the red. September swaps fell by $3.75/b on the day to $92.50/b with October falling $3.15/b. Both exceeded the decline on crude to leave Q4 cracks down more than $1/b. In the cash market 92 RON was bid at $92.90/b for prompt loading and offered at $93.37/b for later dates. Quantum assessed at $93.43/b, leaving physical cracks in the red for the first time in more than two years. The cash differential fell $0.25/b to $1.44/b. The fall comes despite a decline in stocks in Singapore.

Jet paper cracks tanked, following Asian diesel benchmarks, which in turn tracked European diesel values lower as European gas prices fell on talk of an EU energy cap. September and October swaps fell about $7.50-8/b on the day. Aramco was offering a 16-20 September cargo at $2.20/b over late September swaps, a price equivalent to $130.55/b and a cash differential of $1/b. No physical deals were heard. The east-west firmed marginally for September to -$83.50/mt versus -$88.75/mt on Thursday as jet values in Asia held up better than in Europe.

10ppm diesel cargo swaps for September and October fell sharply, outpacing the fall in Europe, which was triggered by lower gas prices on Wednesday. Swaps fell more than $7.50/b on the day versus a $3.27/b move down on crude. The cash differential was broadly stable at $2/b on the back of bids for cargoes from Vitol and Mercuria at $2/b and $1.50/b, respectively. Offers Shell, Petrochina and BP at $2.1/b-2.90/b were also seen. That has left physical crack spreads at a two-week low $44/b. Like jet, prices in Asia held up marginally better than in Europe, with the EFS rising $5/mt. Singapore stocks were up 500,000 barrels last week, but that only recovered some of the fall the previous week.

Marine fuel oil 0.5% was offered aggressively by Trafigura on Thursday, with the trader offering parcels at between flat to swaps up to a $3/mt premium, leaving flat prices at $655/mt. That's more than an eight month low. No deals were heard. Quantum assessed the differential at $1.70/b, down almost $4/mt on the day and the M1/M2 backwardation collapsed from $8/m to $4/mt, signifying real weakness. Just last month that cash differential was near $20/mt. Marine fuel oil physical cracks at $0.76/b are now headed to a 10-month low amid rising fuel stocks in the region and cheaper blending costs. Just two months ago they were above $35/b due to tight supply constraints .That has left the arb from Europe at just $21/mt, down from almost $140/mt six weeks. While 0.5% marine fuel tanked, HSFO held up better amid thin liquidity. One deal was heard at flat to swaps for 380cst, although that bid was deemed too low and cash diffs were assessed at $4.25/mt. For 180cst, Vitol was bidding at $6/mt over swaps.