Singapore - Asian refining margins for 10 ppm gasoil climbed to their highest in over a month on Monday, buoyed by expectations of firmer near-term demand as the shipping industry switches to cleaner marine fuels from Jan. 1.
Refining profit margins, also known as cracks, for gasoil with 10 ppm sulphur content rose to $16.06 per barrel over Dubai crude during Asian trading hours, a level not seen since Nov. 7. They were at $15.67 per barrel on Friday.
Cracks for the benchmark gasoil grade in Singapore have risen about 7% over the last couple of weeks and are currently at their strongest seasonal level in the last five years, Refinitiv Eikon data showed.The marine gasoil (MGO) market would likely get a major boost over the next few months as new International Maritime Organization (IMO) rules prohibit ships from using fuels containing more than 0.5% sulphur, compared with 3.5% through the end of December.
Though very low-sulphur fuel oil (VLSFO) has been the primary choice of ship owners in the fuel switch, traders expect MGO demand to pick up as more and more ships seek compliant fuel and VLSFO stocks get depleted.
Cash premiums for 10 ppm gasoil GO10-SIN-DIF were at 85 cents per barrel over Singapore quotes on Monday, compared with 91 cents per barrel on Friday.
The front-month time spread for 10 ppm gasoil, which have remained in firm backwardation over the last one month, widened on Monday to trade at a premium of 70 cents per barrel.
Backwardation, when the front-month contract is more expensive than subsequent months, makes it uneconomical to store the product, resulting in a drawdown in inventories. It is usually seen as a sign that prices are likely to head higher in future months.
Meanwhile, cash premiums for jet fuel JET-SIN-DIF were at 20 cents per barrel to Singapore quotes on Monday, compared with a premium of 27 cents per barrel on Friday.
Cracks for jet fuel jumped 39 cents to $14.61 per barrel over Dubai crude on Monday.