Weekly Asia products: Surging Indian demand, falling US stocks push up gasoline cracks

Quantum Commodity Intelligence - Refining margins for light ends improved in Asia amid the slump in crude futures over the week, shrugging off higher stocks in Singapore as regional demand and shrinking inventories in the US underpinned value.

Crack values versus Brent for August naphtha cargoes arriving into Japan gained $11/mt on Friday from a week earlier to $131/mt CIF Japan as propane premiums to naphtha and firming gasoline cracks injected bullish sentiment.

Concerns over low stock builds of propane in the US ahead of the winter caused global propane prices to rally in relation to naphtha prices in the week, but to levels where steam crackers will use naphtha instead of propane.

And in gasoline rising demand from India, where consumption is at a three-month high and lower stocks in the US despite soaring production, has offset falling demand in southeast Asia and lower stocks in Singapore.

92 RON cracks have risen from $8.09/b to $8.79/b, although there are now questions whether higher prices may start to curb demand. The Aug-Sep spread widened from $1/b to $1.40/b over the course of the week.

Despite ongoing travel restrictions to stop the spread of Covid in the region, as well as the fact Japan banned spectators from stadiums for the Olympics, the regrade in Singapore also improved over the week.

The August regrade narrowed to -$2.15/b from -$2.40/b on Friday, and that was down to a greater marginal improvement in jet cracks than 10ppm diesel, with August paper jet cracks versus Brent rising to $3.99/b from $3.69/b, while 10ppm rose just $0.05 to $6.14/b.

The fuel oil market diverged amid the slide in crude, with marine fuel (0.5% sulfur) Singapore cracks softening in line with Brent, and high sulfur 380 cts cracks falling more.

August paper for HSFO 380 cst in Singapore dropped $2.36/b by Friday from Monday, the biggest fall of the major oil products compared to the $1.78/b loss in August cash Brent over the same week.

Unlike Europe, where there is backwardation for marine fuels, the HSFO 380 cst curve is in contango, reflecting weak demand amid shipping restrictions.