Global Oil and Asian Product Market, February
OPEC and non-OPEC production cuts continued to support oil prices. Crude prices rose during February and reached to its highest since July 2015. Market players believe that OPEC and non-OPEC countries have made a strong start to lowering their oil output under the first such pact in more than a decade. Eleven out of 13 OPEC members along with 11 non-OPEC countries have agreed to make cuts for the first half of the year. OPEC members Nigeria and Libya, both suffering setbacks in production, were given exemptions. The cuts are aimed at reducing a global glut in oil that has weighed on oil prices for around two years. OPEC adherence to November agreement is around 94 percent, while that of non-OPEC may only be around 50 percent.
The share of Iranian crude heading to the Asia Pacific region climbed in January as the main suppliers in the region are following OPEC’s November agreement to cut a combined 1.2 mb/d. Iran has steadily boosted supplies as it seeks to retake the share it lost in the global crude market in the past several years. In condensate market, Iran exported its floating storage and reached its highest South Pars Condensate sales. Looking ahead, the price of condensate in the region will rise significantly because all the unsold Iranian barrels and all the storage disappeared quickly.
Asian Product Markets
Light Distillates (gasoline, naphtha)
Naphtha market was strong and healthy during February. Lower arbitrage volume from West to East and lower export availability from Middle East due to the recent fire at ADNOC refinery limited the supply side of the market. On the demand side, strong petchem margins caused the petrochemical units to operate at their full capacity and use more naphtha. Moreover, naphtha demand for gasoline blending purpose was high in the region. In addition, incremental switch from LPG towards naphtha as feedstock has occurred on the back of high LPG prices. Looking ahead, in the year 2017 the balance of regional naphtha is likely to tighten due to the expected increase in demand. Naphtha demand will be supported due to the Sadara and PetroRabigh.
The other light distillate product -gasoline- improved more during February. There were supporting factors on both demand and supply sides. On the supply side, Singapore onshore stocks fell. Demand in East of Suez was firm. ADNOC bought considerable volume of gasoline for delivery in March and April as its RFCC complex remains offline due to the recent fire. Adding to the demand, Indonesia which is the region’s largest importer continued to provide supports on demand side. The outlook for gasoline is bullish due to the upcoming driving season.
Middle Distillates (gasoil)
Gasoil February cracks – the differential between gasoil prices and Dubai crude prices- improved amid strengthening regional fundamentals. Refinery maintenance is curbing supply, while demand is seeing a seasonal strengthening. Firm demand from Sri Lanka and Tanzania were supporting the market. Besides that, there was demand for the cargoes to be sent to Europe, adding more support to the market.
Fuel Oil
Fuel oil market weakened as export economics and availability from the West are improving on the back of easing demand from the power generation sector in Europe. Moreover, exports availability out of ADNOC’s Ruwais refinery, which are likely to persist into this spring, are also weighing on Asian fuel oil market. South Korea became a net fuel oil importer in January, which together with lower Chinese exports has likely prevented greater crack losses. However, with demand expected to see a seasonal easing on weaker power generation requirements, it is expected to see lower South Korea imports in the next following months.