After hitting a record low on November 13, stocks have risen by 20% on the back of a rebound in heavy distillate volumes, S&P Global Platts Analytics said in a report.
Stocks of light distillates, including petrol and naphtha, rose 9.1% week on week to 4.656 million barrels, but remain largely rangebound, in line with levels seen in recent weeks. Demand in both Asia and the Middle East is strong, which is drawing in rising European volumes due to a closed trans-Atlantic arbitrage to the US.
Meanwhile, refinery outages and delays in the Middle East are contributing to tighter regional petrol supplies, Platts Analytics said. Stocks of middle distillates fell 18.7% week on week to 1.212 million barrels, hitting a new record low for the third consecutive week.
The spread between the front-month Singapore gasoil swaps and ICE gasoil futures narrowed to minus $7.46/mt on December 5, which is not wide enough for the arbitrage from East of Suez to Europe to work. Fundamentals for gasoil in Asia and the Middle East are seen as stable, although a closed arbitrage to Europe continues to squeeze premiums for Mean of Platts Singapore 10 ppm gasoil. Given the closed arbitrage, cargoes from India and the Middle East were likely to flow to Singapore instead, Platts Analytics said.
Stocks of heavy distillates and residues rose 12.9% to 12.314 million barrels. Stocks were at a 20-week high and have risen by 48% since hitting a nine-month low of 8.32 million barrels on November 13. This was partly the result of a more supportive market structure for storage.
The front-month time spread for Arab Gulf 180 CST swaps has been in backwardation since August 3, discouraging stock-building. The spread flipped into a contango of minus 50 cents for the first time since August 3 on December 5.
Local sources said that increased fuel oil supplies arriving in Fujairah from Iran, where domestic gas supply is back to normal following the end of maintenance at the South Pars fields, Platts Analytics said.
On the demand side, latest developments suggest that Pakistan State Oil (PSO) will continue to receive fuel oil cargoes from Fujairah. This follows a recent government order enabling fuel oil purchases by power plants to continue, seemingly overriding a previous decision in October to shut down fuel oil burning for power generation to reduce pollution in Punjab, the country’s’ most industrialised and populated province. PSO has tendered for a total of 455,000 mt of high sulfur fuel oil for loading from Fujairah in January.