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China gasoil exports build surplus, hold Asia cash spread to multi-year lows

China’s record-breaking gasoil exports have built a surplus of the fuel in Asia, sending the region’s gasoil cash differentials to Singapore assessment prices to multi-year lows, with no sign the glut is set to subside through the third quarter.

Cash differentials for Asia’s benchmark 10 parts-per-million (ppm) grade, gasoil containing 0.001 percent sulphur, sank to a discount of 25 cents a barrel to Singapore prices on July 2, the lowest since Reuters started tracking the grade in late 2011.

The differential GO10-SIN-DIF has held near that level since then, although narrowing slightly.

“Singapore 10 ppm gasoil usually trades at a premium but is now trading at a discount as it is very bearish,” said a Singapore-based veteran trader of middle distillates.

“The bearishness is more a result of supplies coming from China and sellers having few outlets as the Asia-Latin America trade flow is shut,” the trader said.

China’s diesel exports have been surging as refiners there have been running at record rates. China’s March gasoil exports reached 2.4 million tonnes, surpassing an earlier record of 2 million tonnes in November 2017. O/CHINA4 January and May, China exported about 8.5 million tonnes of diesel, 6.5 times higher than in 2015 and up 27 percent versus 2017 over the same periods.

The rising gasoil supplies have prompted refiners to search for new markets, with Sinopec Tianjin Refinery shipping a parcel to Australia last month for the first time. shifts towards gasoil/diesel are becoming observable in the latest rounds of data,” said Eugene Lindell of the JBC Energy Research Team, a consultancy firm based in Vienna.

The shift towards middle distillates – caused by price incentives over other fuels – could also mean higher exports including from South Korea and India, Lindell said.

The recovery in crude oil prices has weighed heavily on most fuels, although middles distillates gasoil and jet fuel have fared better than products such as gasoline and naphtha. exported 8.8 million tonnes of gasoil over January-April versus 8.4 million tonnes for the same period last year. O/INDIA2

South Korea exported 71.6 million barrels (9.5 million tonnes) for the first five months this year, down 1.4 percent during the same period last year, according to data from state-run Korea National Oil Corp.

“We could be looking at a fairly oversupplied Asian gasoil/diesel picture,” Lindell said.

Gasoil could be stored on tankers until demand picks up in the fourth quarter, when the market would strengthen, he said.

Gasoil is a primary industry and transportation fuel in Asia, and is also used for mining and heating as in Europe and the United States.

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