Asian gasoil cash differentials slipped on Tuesday as traders expected continued high diesel exports from China where domestic demand remains weak. China's implied oil consumption grew 2.5 percent in 2015 on strong growth in gasoline and kerosene use, defying a slowing economy and falling demand for many other commodities.
Yet growth in 2016 is seen lower as the world's second-largest economy slows further and the government reins in car purchase tax breaks that have so far propped up demand for gasoline-powered vehicles.
Diesel demand remains weak despite the upcoming Lunar New Year ahead of which industrial demand usually picks up, traders said. Weakening industrial activity was pressuring diesel demand, the International Energy Agency said in a report released on Tuesday citing November statistics.
"Diesel (gained) additional downside momentum as Chinese coal demand contracts, the movement of which previously provided a large support through additional railroad movements," the agency said. "A factor that is growing in importance is China's evolving economic structure with a growing switch towards domestic consumption away from heavy manufacturing and exports."
Traders are hiring two smaller tankers rather than one large one to ship clean oil products in Asia as a big gap in freight rates between different sized vessels offers savings of at least $100,000 per load, trade and shipping sources said. This is a shift from the usual practice of buyers in Asia lifting larger cargoes to maximise cost savings in freight rates, they said.
An increase in middle distillates cargo volumes shipped from Asia and the Gulf to Europe combined with naphtha cargoes shipped from the West to the East has driven up freight rates for larger long-range (LR) vessels which tend to carry 55,000-75,000 tonnes, the sources said.