Cash differentials for Asia-Pacific regional medium sweet crudes have headed south in the February 2023-trading cycle on the back of weaker gasoil and jet fuel products cracks, market sources told S&P Global Commodity Insights.
Middle distillate products cracks have softened in December, with the Platts second-month gasoil and jet swap cracks versus Dubai crude averaging $/b and $/b, respectively, in the month through Dec. 21, compared with $/b and $/b in November, S&P Global data showed.
Cash differentials for February-loading barrels of Malaysia’s flagship Labuan crude have dipped on the month as Petco, the trading arm of Petronas, sold the crude to Vitol at a premium of around high-$9s/b over Platts Dated Brent crude assessments, FOB, traders said.
January 2023-loading barrels of the crude changed hands in November at a premium of around high-$/b over Dated Brent, FOB, traders said.
“Regional market sentiment has turned weaker. The dip in cracks and overall sentiment has yet to come out of bearishness,” said an India-based crude oil trader.
“Market is generally weaker with Chinese crude oil demand being poor,” said a Singapore-based crude oil trader.
Meanwhile, supply cues for another key grade Kimanis have remained stable on the month in December, with seven 600,000-barrel cargoes in the February-loading program, traders said.
Petronas will have three cargoes for Feb. 6-10, Feb. 11-15 and Feb. 24-28 loading while Shell will hold two cargoes for Feb. 2-6 and Feb. 28-March 4 loading.
Thailand’s PTT and oil and gas company ConocoPhillips will each have one cargo for loading over Feb. 15-19 and Feb. 20-24, respectively. However, the latter has sold its Kimanis cargo to PTT at a premium of around low-$9s/b over Dated Brent, FOB, according to sources.
“Although cracks are weaker, it could just be the year-end period when regional crude premiums have fallen this much. Fresh demand may be thin with end-users having their procurement requirements fulfilled,” said the Singapore-based crude oil trader.
Among other grades, PetroVietnam Oil has awarded a 300,000-barrel cargo of Sao Vang and Dai Nguyet crudes to PTT for Feb. 6-12 loading, according to sources.
Pricing information, however, was not immediately available.
“The supply of Vietnamese crude this month is normal and within expectations. There was too much supply [of Vietnamese crude] last month,” the Singapore-based trader added.
Full tender results for the other medium sweet Vietnamese grades, such as Ruby and Thang Long, are expected in the coming days.
“I would expect these cargoes to trade at lower differentials [to Platts Dated Brent] too,” said the India-based trader.
Uncertainty clouds middle distillate outlook
The outlook for the Asian middle distillate complex remains uncertain. Market participants were seeking clarity on Chinese oil products export quotas and the potential impact of the Feb. 5, 2023, EU sanctions on Russian-origin oil products on regional trade flows to help form a clearer view on demand- and supply-side fundamentals.
“Sanctions of Russian oil products exports and China’s products export quotas will impact the global trade flows next year,” S&P Global oil analyst Rasool Barouni said.
The issuance of a new batch of oil products export quotas in 2023, as well as a recovery in Chinese domestic consumption post easing of COVID-19 restrictions, could affect outflows of middle distillates from the Asian economic heavyweight in the months ahead, sources said.
“The new year will be a dramatic one for Asian oil markets … additional key factors to watch will thus be demand recovery in China and its oil product exports…as well as the region’s refinery run rates,” said Kang Wu, head of global oil demand and Asia Analytics at S&P Global.
Hefty outflows of middle distillates from China over the fourth quarter have been key in easing supply tightness in the Asian complex, market sources noted. China’s export volumes in the months ahead could continue to shape supply fundamentals in the Asian middle distillate market.
On the demand side, the impending EU sanctions on Russian-origin oil products could lead to a higher dependence on Asian gasoil barrels, sources said.
Russian products flows to Europe were in decline until November, when they saw a jump as the market prepared for sanctions, said Rebeka Foley, an oil analyst at S&P Global.
“These volumes should fall off once the February sanctions come into force,” she added.
The benchmark FOB Singapore 10 ppm sulfur gasoil front-month derivative crack spread against the front-month Dubai swaps averaged $35/b over Dec. 1-21, narrowing about 8.28% from an average of $/b in November, S&P Global data showed.
The FOB Singapore jet /kerosene derivative crack spread has been steady, averaging $/b in the month through Dec. 21, compared with $/b in November, according to S&P Global data.
