Asian middle distillate prices trended higher on Tuesday in tandem with crude, but gas oil's swaps contango widened amid rising South Korean exports despite a flush of physical trades.
The window saw five cash deals, all of gas oil. Hin Leong bought four cargoes at outright prices of $85.00-$85.40 a barrel and at discounts of 50 cents a barrel to Singapore quotes, while Trafigura bought a cargo at minus 48 cents a barrel.
Prices fell compared with previous deals struck at between 30 cents a barrel discount and parity. "It's hard to say why the physical market was so active today. It could be some pricing play," one trader said. Gas oil's August/September swaps contango widened by 10 cents from Monday to 30 cents a barrel, while the August crack spread over Middle East Dubai crude weakened 10 cents to $16.04 a barrel.
The market was flooded with supplies, especially of low-sulphur grades, due to poor regional demand and the arbitrage window to ship excess cargoes westwards stayed shut.
Adding to the glut was a higher export volume from South Korea, which was forecast to increase spot August diesel shipments to 940,000 tonnes from July's 840,000 tonnes. The August cargoes of low-sulphur grades traded at weaker premiums of 60-80 cents a barrel to Singapore quotes, on a free-on-board South Korea basis, versus premiums of more than $1 for July supplies.
"There are a lot of supplies from South Korea. They are rolling over into September," said a trader. August regrade, or the spread between jet-kerosene and gas oil, held steady at $3.30 a barrel, firmer than $2.35 last month. The jet fuel market, already underpinned by higher Chinese demand, drew fresh support from lower exports from South Korea. The South Korean refiners will cut August jet fuel sales by nearly 20 percent from July to 525,000 tonnes, as GS Caltex will halve exports to 125,000 tonnes due to an upcoming regular maintenance.