Refining margins, or cracks, for gasoil with a sulphur content of less than 10 parts per million (10 ppm) rose to US$17.79 (RM74.13) a barrel over Dubai crude on Wednesday, the highest since September 2015. That was up from US$17.49 on Tuesday.
Jet fuel margins also rose, hitting an eight-month high of US$17.55 a barrel over Dubai crude as the aviation sector in Asia booms. In February, jet fuel margins also touched a three-year high of US$18.03 a barrel.
“Middle distillates have been strong for some time already and will stay strong for much of next year with IMO 2020 effects kicking-in in mid-2019,” said Nevyn Nah, an analyst at consulting firm Energy Aspects.
In the shipping industry, new regulations from the International Maritime Organisation (IMO) will force shippers to reduce the sulphur content in fuels from 2020. One way to do so is to switch to low-sulphur gasoil.
In China as well, authorities in October imposed tighter rules on vessel emissions in and around major ports including Shanghai, the world’s biggest container port, propping up local demand for cleaner diesel fuels.
Meanwhile, in Asia’s aviation sector, passenger traffic is booming. At Singapore’s Changi airport, the region’s biggest air travel hub, passenger figures rose by 2.3 million for January-August this year over the same period of 2017.
Lower supplies due to disruptions from typhoons and an earthquake in Japan, a major refiner, coupled with low inventories in the fuel centres of Singapore and Amsterdam-Rotterdam-Antwerp (ARA) are also pushing up margins, trading sources said.
Singapore middle distillate inventories declined to an eight-week low of 9.19 million barrels in the week to Oct 17, while ARA gasoil stocks fell 5.3% in the week to last Thursday.
Also, diesel exports from China and India, pivotal for the overall Asian supplies, fell in September as steady domestic demand curbed overseas shipments.
China’s September diesel exports fell to a 21-month low, while India’s diesel shipments fell 7.6% from the same month last year.
Middle distillate margins are also being lifted as seasonal demand for modified jet fuel and gasoil for household heating is rising in Europe and Asia.
On a seasonal basis, gasoil cracks are at their highest in five years, and jet margins are at their highest since 2012 for this time of year, Eikon data showed.