Recovering gasoline refining margins in Asia-Pacific are expected to cut Chinese fuel oil production, which will help relieve high inventory levels at major bunkering hubs in China, according to market sources, reports Argus Media.
Chinese Fuel Oil Rate
Chinese refiners boosted fuel oil output during January-February when fuel oil refining margins — as measured by fuel oil’s crack spread, or the difference between first-month fuel oil cargo paper values and front-month Dubai crude prices at Singapore close — rose. China’s fuel oil production rose by 5pc to 639,000 b/d in February from 609,000 b/d in January, according to latest data from the country’s national bureau of statistics (NBS). The NBS does not provide an output breakdown for very low-sulphur fuel oil (VLSFO) and high-sulphur fuel oil (HSFO).
Argus’ Data
Argus’ data show that gasoline and VLSFO refining margins, or the differential between Singapore 92R gasoline or 0.5pc sulphur marine fuel and Dubai crude prices, started to deviate from each other from 10 February, with gasoline rising from $110/t on 10 February to $148/t on 9 April and 0.5pc sulphur marine fuel almost halving from $50/t to $26/t over the same period.
Chinese Bunker market
A rise in tourism during China’s Qingming festival also helped support the country’s spot gasoline prices, raising the potential for Chinese refiners to lift gasoline yields and cut fuel oil yields through diverting more vacuum gasoil (VGO) feedstock to hydrocracking units to produce gasoline.
But it will take time for the bunker market to digest the current oversupply. Abundant supplies of VLSFO at major bunkering hubs such as Zhoushan as a result of rising domestic production and imports have dampened Chinese bunker premiums.
Oil Production Prices
A senior official from a major Chinese state-controlled refiner said the firm’s fuel oil production has started to fall since April, although he thinks March production will be higher than February levels, without providing specific figures.
It may take until the end of this month or early May to relieve the high fuel oil inventories, especially of VLSFO, as incremental March production also makes its way into the bunker market, a major bunker supplier said.
Decreasing Imports
Continued higher fuel oil output in March may have also reduced China’s fuel oil imports in April, according to several traders, which have already cut their April-arrival imports, especially of VLSFO.
Bunker suppliers in China are still making losses on their bunker volumes, as measured by the differential between fuel oil procurement costs and bunker spot prices, as a result of the supply overhang.
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Source : Argus Media
