SINGAPORE, Sept 17 (Askume) – Asian ultra-low sulphur diesel refining margins fell to their lowest in almost three years due to excess supply and persistently weak derivatives markets, pricing data from the London Stock Exchange Group (LSEG) showed.
Margins on 10 ppm diesel, a fuel used in transport and industry, fell to less than $11 a barrel from $11.50 a day earlier, data showed.
This is the lowest level since December 1, 2021, according to LSEG data.
Strengthening of crude oil prices relative to diesel further extended the decline, as derivative prices remained stable over the past two sessions, leading to “supply still exceeding demand” in the market, a Singapore-based trade source said.
Data from the London Stock Exchange showed the derivatives market was little changed from the previous session, with note exchange prices for October and November rising by just 20 cents a barrel.
Askume records show the last time cracks fell to an 18-month low was in late August.
Another Singapore-based trade source said that despite the impending maintenance season, supplies are still considered ample as swing suppliers such as India can still divert cargoes eastward in September.
Ship tracking data from the London Stock Exchange Group (LSEG) and Kpler show that about 2 million barrels of Indian-origin diesel/gasoline are expected to flow to Asia in September, although trade flows to Europe will also reach a five-month high in the same month.
However, some analysts expect market fundamentals to improve soon as refinery output reduces due to maintenance and production cuts, leading to a rise in refining margins, though they are cautious about the market rally.
“We believe Singapore gasoline crack is oversold… the market is underestimating the inventory drawdown expected in September and throughout October,” FGE analysts said in a client note on Sept. 13.
In a separate report on September 16, FGE analysts said net short positions in ICE derivatives markets were the main reason for the market weakness, adding that these positions reached the highest level in the last 13 years.
He added: “In terms of both the supply-demand balance and apparent inventory levels, the inventory situation this year (in OECD countries) is not as pessimistic as in 2016.”
