Diesel prices sizzle on tight supplies
Diesel prices sizzle on tight supplies
SINGAPORE (Reuters): Sizzling Asia gas oil prices are likely to remain high for the next few months as prompt supplies are scarce, but prices could falter late in the year when several Middle East and Asian refineries come back online, traders said.
Gas oil prices have risen sharply in the last few weeks, underpinned by unexpectedly strong demand from Indonesia for August and September barrels.
Higher crude oil prices also helped, although the increase in gas oil prices has surpassed gains in crude.
On Monday the premium for gas oil over benchmark Dubai crude was just over $10 per barrel, the highest in years, traders said.
Normally, the gas oil/Dubai spread is $2-$3 a barrel in favor of gas oil, they said.
Strong spot demand in the Singapore market has boosted gas oil prices by more than $4 a barrel in the last fortnight, traders said.
They said BP has been an active buyer in August, accumulating about 1.5 million barrels of gas oil since the start of the month.
On Friday, early September gas oil was bid on the Singapore spot market at $39.10 per barrel, although the most recent trade was on Wednesday, when BP bought a 150,000-barrel cargo at $37 per barrel, near a nine-year peak of $37.55 done in March.
The price rise has been steep. In early August BP bought a cargo at $32.80.
Traders said Indonesia bought 3.5-4.2 million barrels of spot gas oil per month in August and September from sellers such as BP, Petco, Glencore and Marubeni.
Indonesia usually buys about 2.4 million barrels per month on the spot market.
Maintenance shutdowns at Indonesian refineries have cut domestic supplies, while term supplier Kuwait was providing less volumes due to the shutdown of its 485,000 barrels per day (bpd) Mina al-Ahmadi refinery after a late June fire.
Refineries in Saudi Arabia and Iran are also undergoing maintenance, further tightening supplies.
Traders expect gas oil will remain in tight supply in Asia in the next few months until Middle East and Asian refiners return from maintenance.
A shutdown at Saudi Arabia's 44,000 bpd Ras Tanura hydrocracker was expected to last until early next year, while Kuwait's Mina al-Ahmadi refinery was seen resuming crude processing only late this year as the fire damage was extensive.
"I expect that any restart of operations at the Mina al-Ahmadi refinery will only happen in December, at the very earliest," said a trader active in Middle East trade.
"Although one crude unit is not damaged, pipelines connected to the unit and upgrading units were affected by the fire, and they cannot restart just the crude unit on its own," he said.
Within the region, Malaysia's 100,000 bpd Malacca II refinery will also have a one-month shutdown in October, cutting supplies into the market by two to three cargoes at least.
But in the longer term, traders said the market strength may fizzle out as the supportive buying on the Singapore spot was not likely to last. Indonesian demand could ease as its refineries emerge from maintenance by end October.
"BP buying on the (Singapore spot) is because of Indonesia, and it is hard to gauge how long they will be in there, but it may not last through October," said an Asian trader.
"The market will probably hold at these high levels for a short while because the prompt market is tight fundamentally, but I'm doubtful if it will continue for too long," he said.