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Asia Distillates-Prompt east-west arbitrage at five-month low; premiums near 1-month low

Thursday, 08 February 2024 | 21:00

Asia’s middle distillates margins posted a fourth consecutive session of robust gains, buoyed by the upbeat sentiment in the West and overall strength in the futures markets, though the pace of regional activity continued to disappoint and widen the east-west arbitrage to a five-month high.

Support was mostly evident from gains in the West overnight and a fourth consecutive session of incline from the ICE gasoil futures market, with some rollovers in February to March also underpinning the market.

Traders there were still bullish on tight short-term supplies, given the longer voyage times for cargoes from the east such as Middle East and India to Europe, analysts say.

“Moreover, a positive outlook for demand resonates on both sides of the Atlantic, bolstered by signals from central banks indicating a move towards lower interest rates and improving manufacturing industry sentiments,” said Sparta Commodities analyst James Noel-Beswick.

“Looking ahead, the prevailing expectation is for ICE GO cracks and spreads to continue their upward trajectory into at least the medium term, contingent upon any substantive changes in the geopolitical landscape of the Middle East”, he added.

The prompt and forward east-west arbitrage spread, typically measured by the exchange of futures for swaps (EFS) differentials, widened for a fourth consecutive session to between $68 and $83 per metric ton. LGOAEFSMc2

This came due to even thinner spot market liquidity during Asia’s trading window, with major trading participants already away for the long holidays.

Downside pressures were also recorded on a cash premiums basis.

Cash premiums GO10-SIN-DIF slipped to a near one-month low, with a deal being done for the first time in almost a month. A narrower February-March backwardation also weighed on spot premiums.

Jet fuel refining margins JETSGCKMc1 also gained by around 2% session-on-session.

Some refinery troubles in the Japan region possibly resulted in a few more shipping enquiries in the market on the east China-Japan route, one source said.

At least two 35,000-metric ton jet fuel/kerosene cargoes were arranged for end-Feb loading from Nanjing to China, the source added.

Regrade JETREG10SGMc1 widened slightly to nearly $3 a barrel as a reflection of the stronger performance in gasoil markets, despite some prompt support for jet fuel demand.

SINGAPORE CASH DEALS O/AS

– One 10ppm gasoil deal, no jet fuel deal.

INVENTORIES

– U.S. crude stocks rose as oil refiners took in less oil, following extreme cold weather that knocked out utilization last month, the Energy Information Administration said on Wednesday.

– Singapore’s middle distillates stockpiles slipped slightly week-on-week as net exports of both diesel/gasoil and jet fuel/gasoil posted robust gains, official data showed on Thursday.

REFINERY NEWS REF/OUT

– BP Plc BP.L plans to keep the 435,000 barrel-per-day (bpd) Whiting, Indiana refinery shut for up to three weeks for inspections of units and piping following a Feb. 1 plant-wide power outage, said people familiar with operations on Wednesday.

– Japan’s Cosmo Oil, a unit of Cosmo Energy Holdings Co 5021.T, shut down the 75,000 barrel-per-day (bpd) No.1 crude distillation unit (CDU) at its Chiba refinery near Tokyo on Feb. 7 due to system trouble, a company spokesperson said.

– Japanese refiner Idemitsu Kosan Co 5019.T has shut its crude distillation unit (CDU) and some derivative units at its Aichi refinery for repairs following a technical issue, three sources with knowledge of the matter said

NEWS

– Oil extended gains on Thursday after Israel rejected a ceasefire offer from Hamas, while a weaker dollar also supported prices.

– India’s fuel consumption rose 8.2% year-on-year in January, government data showed on Thursday, helped by strong industrial activity in the world’s third top oil consumer.

– Shares of Finland’s Neste plummeted on Thursday after the biofuels producer and oil refiner posted fourth-quarter operating profit below expectations and forecast a lower 2024 renewable products sales margin than that of last year.

– Czech oil pipeline operator MERO is in the final stages of talks to buy Shell Deutschland’s 32.5% stake in the Mineraloelraffinerie Oberrhein refinery (MiRO) in Karlsruhe, daily paper Hospodarske Noviny reported without citing sources.
Source: Reuters (Reporting by Trixie Yap; Editing by Krishna Chandra Eluri)

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