SINGAPORE, July 29 (Reuters) - Asia's gas oil market weakened on Friday as
its August/September contango widened to a two-month low at 60 cents a barrel on
softer fundamentals.
Market sentiment has been hit by weak regional demand and high supplies,
leading to diesel cracks falling for the past seven sessions from over $19 a
barrel to below $18 on Friday.
Expectations of higher import demand from China to cover power shortages has
faded as traders said there was still no sign of significant cargoes moving into
the country.
However, the market could tighten in September when Japanese refiners could
divert oil product exports for domestic use to meet rising demand for power
generation, they added.
"Domestic demand for power was lower in July because of the typhoon, but
this will pick up next month and refiners are likely to cut their export budget
for September and October," said a Singapore-based distillates trader with a
refiner.
While fuel oil and natural gas remain the main feedstock for power
generation, diesel is being used as an alternative fuel by industrial users, he
said.
Japanese shipments of oil products have risen to pre-quake levels since the
country's refiners re-started exports in April following the March 11 disaster.
Trading activity was thin for a second session, with only 300,000 barrels of
the August gas oil swap traded at $129.20-$129.25 a barrel by 0830 GMT, up from
around 250,000 barrels a day earlier.
In the physical spot market, Hin Leong picked up another parcel at higher
price levels, bringing its total purchases of 0.5 percent gas oil cargoes to
around 3.5 million barrels for the month.
Glencore, which has accumulated almost 4 million barrels of the same grade
in July, did not add to its tally on Friday. Traders said Glencore had booked a
ship from Hin Leong on a long-term charter to store the gas oil, which could be
used to supply regional buyers Indonesia and Vietnam.
Jet fuel's premium to gas oil touched $2 a barrel on Friday, a new 5-month
high, mainly due to the weakness in the diesel market. Sentiment was also
boosted after Asia's top buyer, China Aviation Oil (CAO), concluded its monthly
import tender at slightly higher prices.
CAO bought up to 1.2 million barrels of jet fuel for end-August to
end-September loading via tender at a higher price versus a previous deal,
traders said on Friday.
In other tender news, Taiwan's Formosa Petrochemical is offering 720,000
barrels of 500-ppm sulphur grade gas oil for early September loading via a
tender which closes on Friday.
* SWAPS OUTRIGHTS: Gas oil's August swap was down 80 cents at $129.25, while
the September swap shed 78 cents to $129.85 a barrel.
- Jet swaps for August were 75 cents lower at $131.25 a barrel, with the
August regrade (the difference between jet and diesel prices) higher at $2.00,
up 5 cents.
* CRACKS: Gas oil's crack for August fell 4 cents to $17.91 a barrel over
Dubai crude, the lowest since June 29.
- The August jet fuel crack inched up 1 cent to $19.91.
* CASH DIFFERENTIALS: The discount for gas oil with 0.5 percent sulphur
narrowed 15 cents to 35 cents, while the premium for the 0.25 percent sulphur
grades was up 10 cents to 30 cents. The 0.05 percent sulphur grade premium
climbed 15 cents to $1.15 a barrel.
- Jet fuel's cash discount was flat at 58 cents.
* PHYSICAL OUTRIGHTS: Benchmark diesel with a maximum sulphur content of 0.5
percent fell 60 cents to $129.00 a barrel, while jet fuel lost 70 cents to
$130.75.
* CASH DEALS: One gas oil deal.
- Hin Leong bought 150,000 barrels cargoes of 0.5 percent sulphur gas oil
for Aug. 24-28 lifting from PetroChina at a discount of 35 cents a barrel to
Singapore spot quotes.
