Singapore middle distillates crack versus Dubai crude narrows to $5/b, weakness persists

Singapore (Platts)--13 Jun 2018 326 am EDT/726 GMT

The Singapore cracking margin against Dubai crude hovered around the $5/b mark, falling 6 cents/b day on day, to be assessed at $5.03/b Tuesday. The cracking margin had spotted a 10-month low at $4.96/b on June 7. The last time the Singapore cracking margin against Dubai crude was lower was on 19 July, 2017, when it stood at $4.72/b, S&P Global Platts data showed.

The general bearishness reflected in the cracking margins were underpinned by sluggish middle distillates trading activity in Asia, industry sources pointed out.

The gasoil crack -- the spread between front-month 10 ppm sulfur gasoil derivative and front-month Dubai crude derivative -- was assessed at $14.89/b Tuesday, marking a 62 cents/b dip from the beginning of the month.

June's month-to-date average gasoil crack margin against Dubai crude stood at $14.99/b Tuesday, down $1.15/b when compared to May's monthly average of $16.14/b. Sentiment in the Asian 10 ppm sulfur gasoil market has been depressed of late due to excess supply. The completion of scheduled maintenance at regional refineries coupled with decent margins for the middle distillate were key factors leading to the length in gasoil.

"The supply story is dominating now and market is trading weaker," one market watcher said. Despite regular cross-regional flows to the west of Suez, participants said rising freight rates and a stronger EFS was hampering economics, which could potentially trap barrels within the region.

Meanwhile, jet fuel/kerosene crack -- the spread between FOB Singapore jet/kerosene derivative against Dubai swaps -- also trended lower to be assessed at $14.81/b Tuesday, marking a 41 cents/b drop since the beginning of the month.

The month-to-date average of the jet fuel/kerosene crack fell by $1.14/b, from the previous month's average crack to $14.69/b Tuesday. Meanwhile, jet fuel/kerosene crack had declined steadily in June, shedding 84 cents/b to $13.70/b Tuesday. The rolling monthly average crack in June had also seen sharp declines, falling $1.79/b Tuesday to $13.74/b.

Like gasoil, sentiment in the Asian jet fuel spot market has been underwhelming amid a lull in buying interest as the region finds itself awash in surplus product. Compounding these woes, spot arbitrage opportunities have been scant, trapping barrels in the region or forcing them to flow to Singapore.

Market participants viewed this period of weakness as part of the 'shoulder season' in between the winter heating and summer travel demand season. "The quarter is generally a quiet season for jet," a Singapore-based trader said.

"Earlier in the year, the jet fuel market was too strong, and now it is just a correction on the market when it enters summer," a market source said. "Jet fuel cracks were very strong in February, and many refiners locked in the value then," a Europe-based trader said, commenting on the current oversupply in the spot market. "It is profitable as long as they can produce cargoes and deliver," he added.

Platts margin data reflects the difference between a crude's netback and its spot price. Netbacks are based on crude yields, which are calculated by applying Platts product price assessments to yield formulas designed by Turner, Mason & Co.

--Ng Jing Zhi,

--Teo Su Ling,

--Zameer Yusof,

--Edited by Norazlina Juma'at,

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