SINGAPORE, July 6 (Reuters) - Asia's gas oil market weakened on Wednesday,
as the product's August crack fell below $18.00 a barrel as concerns over fuel
demand and high supplies weighed on sentiment.
Signs of slowing economic activity in the region has emerged in the past
week, putting pressure on diesel, which is commonly used an industrial fuel in
Asia.
Manufacturing activity in Hong Kong expanded at its slowest pace in 23
months in June due to a decline in new orders, according to data released on
Wednesday . The news comes days after a report showed China's factory sector
grew at its slowest pace in 28 months.
On the supply side, Japanese inventories of gas oil rose by 825,000 barrels
to over 12 million barrels for the week ended July 2, official data showed on
Wednesday.
"Diesel usage parallels economic activity, so signs of a slowdown will be
negative for the market," said a Singapore-based distillates trader.
News after the Asian 0830 GMT close that China increased interest rates by
25 basis points is likely to further impact the market, although analysts said
the move was within expectations.
"We did expect a interest rate hike in the near term and that had been
factored in to our view of a slowdown in demand growth from China, so I do not
expect a major impact on prices," said Chen Xinyi, a commodities analyst with
Barclays Capital.
Supporting the market was the news South Korean refiner Hyundai Oilbank
would likely join its larger peers in increasing prices of gasoline and diesel
gradually after its three-month price cut expires on Wednesday, a company
spokesman said.
The country's No.1 refiner SK Energy, fully owned by SK Innovation
, second-largest GS Caltex and No.3 S-Oil have all said
they will raise prices in stages.
The four refiners had been widely expected to use a one-time hike to return
fuel prices to levels seen before they were cut by 100 Korean won ($0.094) per
litre in April under government pressure.
Trading activity in the swaps market continued to be heavy, with at least
500,000 barrels of the July gas oil swap transacted at $124.70 a barrel by 0830
GMT, steady to volumes seen earlier this week.
Hin Leong was the dominant buyer of physical spot cargoes, snapping up three
parcels totalling 550,000 barrels at discounts of 40-45 cents a barrel to
Singapore spot quotes. The trades helped narrow the cash discount for gas oil's
0.5 percent sulphur grade.
The jet fuel market continued to be lacklustre, weighed down by ample
supplies and poor regional demand. The product's July premium to gas oil
narrowed to 50 cents a barrel while its July/August timespread dived to a
three-week low at a contango of 60 cents a barrel.
Japanese exports of aviation fuel surged by 44 percent to almost 1.4 million
barrels in the week ended July 2, according to government data.
* SWAPS OUTRIGHTS: Gas oil's July swaps rose $2.17 to $125.85 while the
August swap gained $2.15 to $125.90 a barrel.
- Jet swaps for July were valued at $125.03 a barrel, up 70 cents, with the
July regrade (the difference between jet and diesel prices) falling 15 cents to
50 cents.
* CRACKS: Gas oil's crack for August lost 57 cents to $17.94 a barrel over
Dubai crude.
- The August jet fuel crack fell 55 cents to $18.99.
* CASH DIFFERENTIALS: The discount for gas oil with 0.5 percent sulphur
inched down 2 cents to 40 cents, while the premium for the 0.25 percent and 0.05
percent sulphur grades were steady at 20 cents and $1.45, respectively.
- Jet fuel's cash discount was flat at 50 cents.
* PHYSICAL OUTRIGHTS: Benchmark diesel with a maximum sulphur content of 0.5
percent rose $1.05 to $124.40 a barrel, while jet fuel prices also gained $1.05
to $125.00.
* CASH DEALS: Four gas oil deals.
- Hin Leong bought three 0.5 percent sulphur gas oil cargoes totalling
550,000 barrels for July 21-25 lifting at a discount of 40-45 cents to Singapore
spot quotes from Vitol, BP and SPC.
- Shell sold 150,000 barrels of the same gas oil grade to Glencore for July
21-25 loading at a discount of 40 cents to Singapore spot quotes.
