Asian distillates are set to strengthen this week, helped by stronger demand and persistent supply tightness, but fuel oil is expected to soften on heavy inflows, traders said.
Jet fuel prices will also be lifted by sustained arbitrage openings to the US West Coast. Traders said more cargoes were seen bound for the West Coast after US refiner Tesoro fixed to ship 30,000 tonnes from South Korea in the vessel Pro Giant from second-half June.
"The arb window is still wide open and the jet market is recovering," said a trader.
Prices were supported by robust buying from China Aviation Oil Trading, which is due to award a tender to buy 25,000 tonnes for June delivery. That will potentially extend Chinese jet fuel imports to an all-time peak of 420,000 tonnes.
Jet-kerosene's June/July swaps contango has since narrowed to 40 cents a barrel from minus 70 cents a week ago as the market drew further strength from last week's import tender by Indian Oil Corp.
Gas oil prices were expected to hold steady but no fresh demand was seen from the earthquake-hit Indonesia. Pertamina's 348,000 barrel-per-day (bpd) Cilacap plant was unaffected by the earthquake on Java island and was operating at about 100 percent of its capacity.
Healthy Indonesian and Vietnamese demand are projected to support Asian gasoline prices in the face of lower exports from China, where domestic prices had been raised. Benchmark 92-octane gasoline was valued higher by nearly $2.00 at $86.80 a barrel on Friday, making its premium to naphtha wider by $1.00 at $20.45 a barrel.
Indonesia's Pertamina purchased a total of 3.6 million barrels of gasoline for June, up 64 percent from its May volumes of 2.2 million barrels.
Vietnam's Petrolimex bought 117,000 tonnes of 92-octane gasoline for June, more than its planned purchase volume of 94,000 tonnes.
Firmer gasoline premiums and spot demand on heavy full-range naphtha are helping the backwardation between the first-halves of July and August maintain at $3.50 a tonne, although July naphtha swaps edged down 65 cents to $66 a barrel from Friday.
South Korea's GS Caltex Corp first spot purchase of 225,000 tonnes of heavy full-range naphtha for July as it prepares to start up a new 70,000 barrel-per-day (bpd) splitter, further lifted market sentiment, signalling that the refiner would buy that volume every month.
Fuel oil, however, is likely to weaken further, pressured by heavy inflows and waning demand as Chinese importers eased buying activities due to continually high outright prices, traders said.
Inflows are expected to peak during these two weeks and Singapore inventories, which rose more than 10 percent last week, are poised to rise above the current 12-million barrel level.
"There are still some Chinese enquiries around but their bid levels are quite low and there's not much of a profit margin for sellers. It would seem that it's a matter of time before we start seeing distressed cargoes in the water," a Singapore-based Western trader said.
Persistently high outright prices have curbed buying interest from price-sensitive Chinese importers who have bought well below-average volumes of less than 800,000 tonnes into Huangpu for March and April, resulting in low stock levels.
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