SINGAPORE: Asia's gas oil market weakened on Monday, with the prompt crack falling to a near two-month low as higher output from Japanese refineries weighed on sentiment.
Diesel's premium to Dubai crude has fallen by almost $4.00 a barrel since hitting a 30-month peak over $24.00 on April 11.
Reflecting the softer market, gas oil's cash differentials were also lower, after Singapore trader Hin Leong snapped up 600,000 barrels of gas oil cargoes at lower price levels.
Japan's refining capacity has returned to near pre-quake levels as damaged refineries come back on line and other facilities ramped up their production.
The refinery utilisation rate rose by 1.5 percentage points to 82.7 percent for the week ended April 16, industry data showed last week.
Reflecting the higher output, Japanese gas oil exports surged to around 350,000 barrels for the same period, with traders expecting more shipments in the coming weeks.
"The rest of the Japanese refining sector was already at very low utilisation which means they could increase their utilisation to make up for the missing capacity at the other refiners," said Richard Gorry, director at JBC Asia.
HIN LEONG RAMPS UP BUYING
Hin Leong continued its buying spree in the physical diesel market, buying 450,000 barrels of 0.5 percent sulphur gas oil at a premium of 30 cents a barrel, and 150,000 tonnes of the 500-ppm grade at $1.90 a barrel.
The deals, done at lower price levels, depressed cash differentials in the physical prompt market.
The trader had bought 150,000 barrels last Thursday, after offloading 550,000 barrels of the same product earlier in the week at a premium of 35-40 cents a barrel.
The ultra low-sulphur diesel (ULSD) market was steady, with bids for physical cargoes of the 10-ppm diesel grade seen at $2.70 a barrel, versus trades of $3.10-$3.20 a barrel seen last week.
The ULSD premium has fallen from a high of over $5.00 a barrel seen last month, as a spike in Japanese demand failed to materialise and a closed arbitrage window prevented cargoes from heading west, traders said.
"Western demand is also weak and with crude at these levels, buying interest is going to be thin," said a Singapore-based distillates trader.
The regrade, or the price differential between jet fuel and gas oil edged up 3 cents to 80 cents a barrel.
China Aviation Oil (CAO) is seeking 960,000 barrels or 1.2 million barrels of jet fuel for end-May to end-June delivery, tender documents showed on Monday.
The tender will close on April 27, with offers remaining valid till April 28.
* SWAP SPREADS: The May/June timespread inched up 1 cent to a backwardation of 11 cents a barrel, while the May regrade added 3 cents to 80 cents a barrel.
* SWAPS OUTRIGHTS: The May and June gas oil swaps were assessed at $137.90 and $138.48 a barrel, down 68-69 cents, or around 0.5 percent for both.
* CRACKS: Diesel cracks for May lost 62 cents to $20.26 a barrel to Dubai crude, while May's jet fuel crack narrowed 59 cents to $21.06 a barrel.
* CASH DIFFERENTIALS: The differential premium for the 0.5 percent sulphur gas oil lost 3 cents to 30 cents, while the 0.25 percent sulphur grade slipped 15 cents to $1.05. Diesel with 0.05 percent sulphur was also weaker at $1.90 a barrel, down 45 cents.
- Jet fuel differentials edged down 5 cents to a premium of 20 cents a barrel.
* PHYSICAL OUTRIGHTS: Benchmark diesel with a maximum sulphur content of 0.5 percent fell 70 cents to $138.90, while jet fuel prices lost 72 cents to $138.20 a barrel.
* CASH TRADES: Two jet fuel and four gas oil deals.
- Vitol sold two 100,000-barrel cargoes of jet fuel for May 10-14 and May 16-20 delivery to BP at 20 cents a barrel above Singapore spot quotes.
- Hin Leong bought 150,000 barrels of 0.5 percent sulphur gas oil for May 10-14 lifting from SPC at 30 cents a barrel above Singapore spot quotes
- The Singapore trader bought another 150,000 barrels each of the same grade at a premium of 30 cents to average May prices for May 21-25 lifting from BP and Glencore.
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