September-loading barrels of Vietnam’s Chim Sao and Malaysia’s Labuan crudes were traded in July at record high cash premiums in the range of $20-$21/b to Platts Dated Brent assessments, FOB, according to traders, who deemed those levels unsustainable for the middle distillate-rich crudes for October as product cracks for gasoil and jet fuel weakened.

“Cracks have come off a lot; the market is definitely weaker market than last month,” a regional crude oil trader said.

Platts second-month gasoil and jet swap cracks to Dubai crude swap have averaged $37.83/b and $31.82/b to date in August at the Asian close Aug. 16, well below the $44.66/b and $38.54/b respectively averaged in July, S&P Global Commodity Insights data showed.

Vietnam’s state-owned PetroVietnam Oil, or PV Oil recently sold a 300,000-barrel cargo of Chim Sao crude, which typically has an API gravity of 42.1 and 0.028% sulfur content, to Ampol for Oct. 27-31 loading at a premium in the high $10s/b to Dated Brent, FOB, according to traders.

PV Oil in July sold a similar-sized Chim Sao crude cargo for loading over Sept. 16-22 to Japan’s Mitsubishi Corp. at a record premium of about $21/b to Dated Brent, FOB, traders said. The cargo was purchased for utility Kansai Electric for power generation, according to traders.

“A $10/b drop — really a plunge,” a Southeast Asia-based crude oil trader said.

A shorter October-loading program for Malaysia’s flagship Kimanis crude may provide some relief, with six 600,000-barrel cargoes available for October-loading, down from eight cargoes for September.

A fair value indication for October-loading Kimanis crude was heard at a premium of $11-$12/b to Dated Brent, FOB, according to a crude oil trader, at a slightly higher level than for Chim Sao.

“A 600,000-barrel cargo will be [valued] higher as it can reach more end-users; not everyone can co-load,” the trader added.

However, the shorter length for the medium sweet crude was insufficient to keep sentiment buoyed, traders said.

“I doubt it can support prices, [middle distillate] cracks have corrected a lot,” a Singapore-based crude oil trader said.

The results of PV Oil’s Ruby and Bunga Kekwa tenders were awaited. However, cash premiums for these sweet crude grades are also expected to dip due to the increasing availability of arbitrage barrels such as US WTI Midland and Libyan grades, traders said.
Cracks on downtrend

Gasoil and jet fuel cracks have been on a steady downtrend in Asia since July as increasing near-term availability eases supply tightness, and despite higher volumes of gasoil and jet fuel barrels from the region being scheduled for delivery to arbitrage destinations.

But even at current levels, the cracks for both remain more attractive than for other distillates, encouraging refineries to continue tilting yields toward gasoil and, concurrently, jet fuel, sources said.

“Seems like everyone is still keeping high run rates,” a source with a Northeast Asian refinery said, adding “middle distillates margins are still good.”

Around 1.345 million mt of ultra-low sulfur diesel and 1.2 million mt of jet fuel from Asia was slated to arrive in Europe by end August, up 40% for ULSD and up 50% for jet fuel from July, S&P Global reported earlier.

The weakness in gasoil and jet fuel cracks was expected to continue in the near term amid ample supply in the region, boosted by arbitrage flows out of Asia becoming unviable in recent days for both distillates, which could continue to weigh on the sweet crude complex in the region, market sources said.

Source: Platts