Gas oil swaps fell on Monday, as high supplies persisted. But sentiment improved as drawdown in gas oil stocks in Europe re-ignited hopes of East-West arbitrage trades.
GAS OIL ARB WINDOW MAY OPEN: October gas oil swaps fell $1.39 to $118.45 a barrel, with the intermonth swaps standing at $1.10 a barrel in contango. Demand from top Asian gas oil buyers such as Indonesia, Vietam and China were weaker than before due to high stocks, but falling inventory in Europe may pry open the East-West arbitrage window.
-- Week-to-week data showed that gas oil stocks in the Rotterdam-Amsterdam-Antwerp (ARA) hub fell to 1.963 million tonnes last week from 2.038 million tonnes.
LIMITED FUEL SUPPLY: September paper values fell by $11.25 to $567 a tonne, while supplies remained tight on limited European arbitrage inflows for September arrival.
However, traders expect European arbitrage arriving in Asia next month to hit around 2.8-2.9 million tonnes, slightly above this year's monthly average of 2.7 million tonnes. August and September European arbitrage volumes were below the monthly average, at around 2 million tonnes a month, respectively.
NAPHTHA GLUT: September naphtha swaps rose $1.20 to $95.70 a barrel, but weak sentiment lingered, as high stocks failed to subside on poor demand. Asia's top ethylene maker Formosa Petrochemical Corp and South Korea's number one ethylene producer YNCC were among some of the end users looking to defer deliveries of cargoes because of high stocks.
Traders who were earlier hoping that October could spell the end of their selling woes, were less optimistic. Lack of fresh European arbitrage arriving in October and heavy maintenance in Japanese refineries were initially expected to lift sentiment. However, the persistently weak buying interest could offset the fall in naphtha supplies.