Demand for naphtha and distillates could remain firm this week, but fuel oil remains weak on heavy supplies. Cracks and prices could firm this week, buoyed by South Korean demand, but sentiment could be tempered by an uncertain demand outlook from Japan following a cracker outage.
NAPHTHA MAY STRENGTHEN South Korean demand for April cargoes is expected to stay strong on the back of high cracker run rates. Most buyers are seeking parcels for second-half April, after having replenished stocks for the first half of the month. This could help support cracks - premiums or losses obtained from refining Brent crude into naphtha - above $140.00 a tonne level this week.
Cracks rose $2.47 to $153.83 a tonne premium on Friday. They have hovered above $140.00 a tonne since February 22, and hit their highest in six weeks on March 3 at $164.03 a tonne. But the market's gains could be capped after Japan's Mitsui Chemicals deferred the restart of its 553,000 tonnes-per-year naphtha cracker in Chiba to late March following repair work.
This prompted the petrochemicals producer to defer the arrival of 25,000-50,000 tonnes of naphtha in the first-half of April to the second-half of the month. Demand for May parcels are also unlikely to be as robust as Asia's top spot naphtha buyer Formosa will likely skip purchases due to sufficient stocks.
DISTILLATES TO REMAIN FIRM Asian gas oil cracks are expected to hold firm at 12-month highs of below $11.00 a barrel this week, buoyed by signs of firm demand and an easing supply glut. The market is anticipating that supply disruptions in quake-hit Chile will continue to boost gas oil fundamentals. Chile has been forced to step up diesel imports from Asia and the United States because of damage to its two refineries.
The Bio Bio refinery could remain shut for two to three months, the head of the union there has said, while the smaller Aconcagua refinery is expected to resume operations this week, Chile's new Mining Minister Laurence said. Expectations of tighter supplies due to heavy spring refinery maintenance in Europe and parts of Asia will also continue to underpin the market.
Sentiment has been buoyed by signs of shrinking global inventories. The total volume of distillates held in floating storage fell to 71.27 million in early March from 80.22 early last month, data from ship broker ICAP showed. A further 9.19 million barrels are due to unload in the next few weeks. Last week, US distillate stocks fell for the sixth consecutive week, while gas oil inventories held in independent tanks at Europe's oil hub sank for four straight weeks to their lowest level since late April last year.
FUEL OIL TO LANGUISH Prompt cracks are expected to hover in a weaker range of minus $5.00-$6.00 a barrel, down from the $3.00-$4.00 discount to Dubai crude over the past three weeks, as the impact of heavy March arbitrage arrivals continues to depress the market.
The April-May timespread, which turns prompt on Tuesday, is expected to languish at around a contango of $3.00 a tonne, its lowest level in four months. Western fuel oil arriving in Asia in March stands at around 3.1-3.2 million tonnes, up from a six-month low volumes of 3.0 million tonnes each seen for January and February.
Stocks are expected to remain high, as at least four supertankers or Very Large Crude Carriers, scheduled for March, had their arrival dates deferred to April. But the downside for the 180-cst grade is expected to be limited by European trader Glencore's extended bull play to widen the viscosity spread. The viscosity spread, or price difference between the 180-cst and 380-cst grades, is expected to stay wide at $10.00-$12.00 a tonne, buoyed by Glencore's trading play and the shortage of cutter stocks.
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