SINGAPORE- Asia’s gasoil market is showing signs of life, despite lacklustre regional demand in the wake of widespread coronavirus outbreaks, as Europe sucks up cargoes to restock heating oil in the peak demand period ahead of winter.
Steady arbitrage flows to Europe have boosted cash differentials for the benchmark 10 ppm gasoil grade in Singapore to their biggest premiums since July last year on Thursday, while gasoil refining profit margins are at their strongest since April 2020.
“The East-West gasoil arb will likely remain open in the near term, as firming demand in Europe leading up to winter heating contrasts against weakness in Asia,” said Serena Huang, a senior market analyst at oil analytics firm Vortexa.
“With transatlantic gasoil flows from the US to Europe disrupted by Hurricane Ida, more Asian gasoil barrels could be heading West to meet the firming demand in Europe.”
More than 220,000 barrels per day (bpd) of gasoil loaded in Asia last month are heading to Europe, an increase of 30 percent from July, Vortexa data showed.
Diesel exports from Asia and the Middle East to Europe were set to reach 2.2 million tons in August, their highest since October 2020, while September scheduled flows to Europe have already topped 1 million tons, Refinitiv data showed.
“The East-West gasoil arb should start to look very interesting as we head into the northern hemisphere peak demand season… The values have recently fallen off quite a bit, and that is obviously going to facilitate a few more cargoes going that way,” said Kevin Wright, Kpler’s lead analyst for Asia Pacific.
“It surprises me that it has taken this long for the arb to open more, given the length in Asia that needs to be cleared, and the relative levels or rates of COVID-19 recovery and the relative demand that should imply.”
As more vaccinations are completed and COVID-19 lockdowns ease, Europe’s industrial heartlands are speeding a recovery in demand that pushed gasoil stocks last week in the Amsterdam-Rotterdam-Antwerp (ARA) hub to their lowest in more than three months.
“European diesel demand typically firms over September to November, supported by household restocking of heating oil, particularly in Germany,” consultancy Energy Aspects said in a note, adding that the country accounted for 30 percent to 40 percent of regional heating oil demand over winter.
“Europe’s diesel import requirement will likely rise to 1.23 million bpd in Q4 2021.”
With severe coronavirus outbreaks damping travel and industrial activity across much of Asia, traders and refiners are expected to exploit the open arbitrage window to Europe by increasing exports.
Some are even banking on using new-build very large crude carriers (VLCCs) on their maiden voyages to ship bulk volumes, market watchers said.
One VLCC, CS Hunan Venture loaded gasoil from India in July and off-loaded it to smaller vessels that discharged in Africa and Europe.
Another tanker, TormHellerup, is set to load 90,000 tons of gasoil from Yanbu this month for Arab Gulf delivery, tracking data showed.
