Asia’s middle distillates markets fell as prompt paper activity continued to record a sell-off ahead of contract expiration next week, though some hopes on the widening east-west price spreads capped weakness.
The diesel February exchange of futures for swaps (EFS) price spread hovered at two-month high discounts, as a reflection of the weakness in Asian prompt paper markets since last Friday.
The consistent drop in freight rates on the northeast Asia-northwest Europe route in the past two weeks, together with more possibilities on traders taking the Red Sea route, sparked some talks of a possible east-west arbitrage opening soon.
Up to four vessels loaded from the Middle East with diesel and jet fuel are taking the Red Sea route to Europe in the past week, shiptracking data from Kpler showed.
Some March offers emerged from northeast Asia refiners, kickstarting a fresh month of spot sales activity – though discussions are likely to gain further momentum only a week later.
Meanwhile, talks of further refinery run cuts have been scant following a slight recovery in Singapore complex refining margins to around $3 per barrel – with cracking margins of both diesel and gasoline posting gains in the past two trading sessions.
Refining margins dipped slightly from the previous trading session to close the market at around $16.2 a barrel.
Cash differentials fell for the second straight session this week to 28 cents per barrel, tracking lower priced deals and overall a narrower paper market backwardation for February-March.
Regrade bounced back to narrower discounts of around 80 cents per barrel, as jet fuel paper markets closed the gap against 10ppm sulphur gasoil.
SINGAPORE CASH DEALS
– One gasoil deal, one jet fuel deal
INVENTORIES
– U.S. crude oil stockpiles were expected to have risen last week, while gasoline and distillate inventories likely fell, a preliminary Reuters poll showed on Monday.
