Gasoline: Several Chinese Feb cargoes traded

The differential for MR-size cargos of 92RON gasoline on an FOB South Korea basis was unchanged. On the other hand, the differential of 92RON gasoline on an FOB China basis went down on week. While freight rates stood high, increasing sales from China pushed down the differential on an FOB China basis. On Wednesday, two refiners in China sold cargoes loading in late February through a tender. PetroChina's subsidiary West Pacific Petroleum Co Dalian (WEPEC) sold an MR-size cargo of 92RON gasoline loading on Feb 20-22 from Dalian at a discount of 95cts/bbl to the quotations on an FOB basis. Sinochem also sold 500,000bbl of 92RON gasoline loading on Feb 22-24 from Huizhou refinery at a discount of $1.20/bbl to the quotations on an FOB basis. Due to a rise in freight rates of LR-size cargoes, it was getting less profitable to sell cargoes with LR-size cargoes comparing to MR-size ones, so that a trader pointed out that an MR-size cargo of 92RON gasoline loading in late February from South China could be traded at a discount of around $1.20/bbl to the quotations on an FOB basis. For cargoes loading from South Korea in February no deals were confirmed and prices seemed unchanged.

Naphtha: 2h Mar markets seek directions

Open-spec naphtha prices on a CFR Japan basis were at a premium of $23.00-24.00/mt to Japan quotations to be assessed 30 days before delivery and at a premium of $15.00-16.00/mt to Japan quotations to be assessed 45 days before delivery. Talks on cargoes for delivery in the second half March started. Although a bearish factor was pointed out, supply concerns were staying in the markets. The markets sought the direction.

A view became strong that demand for naphtha would decrease as it was being replaced with LPG as feedstocks of petrochemical products. Due to loosening supply/demand fundamentals and sinking freight rates of LPG vessels, prices for LPG were lower than naphtha prices. Taiwan's Formosa Petrochemical Corp (FPCC) conducted a buy tender for 22,000-24,000mt of propane for delivery in early March. Petrochemical companies in Japan and South Korea had already purchased LPG as a raw material. On Wednesday, Saudi Aramco announced contract prices (CP) for propane and butane loading in February, both up by $10/mt from January. Although the spread between naphtha and LPG narrowed, it remained profitable to feed LPG as a raw material. Thus, demand for naphtha was expected to decrease.

On the other hand, the geopolitical risk off the Red Sea was not resolved and delivery for arbitrage cargoes was delayed. It was hard to prospect the situation around the Middle East, so that supply concerns continued.

Middle distillates: Demand for other region retreats on high freight rates

The differentials for MR-size cargoes of jet fuel on an FOB Northeast Asia basis weakened on slack supply/demand fundamentals. Reflecting the rising geopolitical risk, a delay in delivery was concerning and the arbitrage from Northeast Asia to Europe continued to narrow. At present, it was hard to arrange ships for transportation on high freight rates. On the other hand, refining margins of jet fuel had improved, so that refiners in Asia were increasing the production ratio of the fuel.

South Korea-based oil refiner S-Oil Co started refining oil products which bio-fuel materials are mixed. According to the company, this is the first company to produce those products. It will refine some products such as sustainable aviation fuel (SAF) by using used cooking oil (UCO) or palm oil. Market sources said that the company has introduced Co-processing technology at its Onsan refinery. The company will refine products by mixing bio-feedstock and crude oil at the existing crude distillation units. S-Oil will start full-fledged operations in April onward and is planning to export to some areas such as Europe where demand of the fuel is increasing.

The differential for MR-size cargoes of 0.001% sulfur gasoil on an FOB Northeast Asia basis also declined on week. The market on an FOB basis had been increasingly falling due to high freight rates. Under these circumstances, Chinese oil companies were promoting sales of February-loading cargoes, causing the market price to go down. One Chinese oil company sold an MR-size cargo loading from South China on Feb 23-24 at a discount of mid $3.00/bbl to the Singapore quotations on an FOB basis. Sinochem Holdings was also selling an MR-size cargo for Feb 22-24 loading. Meanwhile, sales for February loading cargoes from South Korean refiners were seen as almost over. However, many traders were saying that sales of cargoes on FOB basis were further compressed on the back of rising freight rates.

Fuel oil: Tight supply expectations bolster market tone

The differential for MR-size cargoes of 0.5% sulfur fuel oil on an FOB South Korea basis was unchanged. Unlike the price movements on the surface, the tacit market tone slightly became firm, reflecting the projection that supply would decline going forward. A number of refineries were slated to make a halt for spring season regular maintenance activities in the Northeast Asia region including South Korea. Kuwait Integrated Petroleum Industries Company (KIPIC) was likely to export less cargoes than originally expected from its 615,000 barrel-per-day Al-Zour refinery, a market source said. Three crude distillation units were apparently experiencing malfunctions at the refinery, according to the player.

The price for VLSFO in Tokyo Bay was at $672.50/mt as of Jan 31, up by $16.00/mt from Jan 24. The increasing Singapore 0.5% sulfur fuel oil paper swap values pushed up the market price.