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Asian gasoil refining profits at 4-1/2-month peak, but further upside seen capped

  • Beyond Q1 2021, gasoil demand growth will depend on how well regional and global economies recover from the ongoing coronavirus pandemic.
Published December 16, 2020
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Asian refining profits for gasoil have hit 4-1/2-month highs on recovering demand led by China and India, though analysts warn that rising shipments from those and other exporters may curb further gains.

Refining margins, also known as cracks, for the benchmark 10 ppm gasoil grade in Singapore have surged 42pc in the last month, but remain 54pc weaker than their historical average for this time of year, Refinitiv data showed.

Revived transportation and industrial activity in China and India since September have helped boost gasoil market sentiment, curbing Indian fuel exports and tightening regional stocks.

However, refiners across the region are expected to boost fuel output heading into 2021, potentially pressuring margins.

"Overall, Asia's gasoil complex will continue to struggle with the persistent supply overhang and limited arbitrage opportunities through large parts of the first half of 2021," said Sri Paravaikkarasu, director for Asia oil at consultancy FGE.

FGE estimates refinery runs have increased by about 800,000 barrels per day (bpd) over the last month, which alongside slowing demand growth would make the Asian gasoil surplus increase by some 180,000 bpd month-on-month in December.

Consultancy JBC Energy expects a gradual improvement in gasoil cracks in the first quarter of 2021, while Wood Mackenzie estimates gasoil demand to reach 8.8 million bpd, compared with 8.7 million bpd in Q4 2020.

Beyond Q1 2021, gasoil demand growth will depend on how well regional and global economies recover from the ongoing coronavirus pandemic.

Traditionally large import markets such as Europe have been weak this year due to COVID-19, limiting arbitrage opportunities for traders sitting on stocks in Asia.

"Asian gasoil will be in large part driven by what happens to demand in Europe over the first part of 2021," said Philip Jones-Lux, energy market analyst at consultancy JBC Energy.

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