Asian diesel, suffering a severe price beating, has dived below $25.00 per barrel for the first time since last August, but traders see some light at end of the tunnel, industry sources said on Thursday.
Some support is seen on paper, one trader said, referring to the swaps market, a derivative used for hedging. Some encouraged buyers are seen on paper at least...the downside is limited unless crude prices fall further.
Traders said major buyer China was out of the market ahead of Chinese New Year, so they were looking to other buyers for a boost, such as India and Indonesia. But there were signs of support elsewhere.Stronger prices in Middle East, compared with East Asia, were keeping exports out of this region and stopping the already well-supplied market here from being flooded, they said.
In fact, a reverse arbitrage might happen and people are already putting together a game plan to ship cargoes westwards but we are not sure whether this will happen, the trader said.
And recent cuts in crude runs at three refineries in Singapore should start to clear surplus stocks by the end of next week as diesel output is capped, they said.
Asian gas oil prices have plunged in the international Singapore market.
Offers of February gas oil were made at $24.80 per barrel on Wednesday, down 22 per cent from $32.10 on January 6 when the market started to collapse. But the underlying swaps price began to recover by 40 cents on Wednesday from the previous day and gained another 50 cents earlier on Thursday with buyers at $26.00 a barrel for February.Traders attributed the rise in swaps to bullish American Petroleum Institute (API) data overnight that showed a surprising draw in crude stocks.
US heating oil futures, which have also suffered sharp losses, were also firm on Thursday, partly helped by expectations of bullish American Petroleum Institute data. February heating oil on NYMEX rose 0.86 cents to 66.89 cents per gallon and added 0.46 cents in Asian time trading on the after-hours ACCESS system.
Despite the mildly positive outlook and the swaps market recovery, physical cargo prices still faced aggressive sellers, traders said.They said prices could slide to $24.00 before finding buying support.
If prices continue to fall, end-users of gas oil in China might emerge as buyers.
Traders said Chinese end-users were starved of diesel because middlemen have kept the oil, which they bought at high prices, in storage when prices fell.
The middlemen would release the oil only if the end-users were willing to pay at higher prices, traders said. One trader noted that some trickling of diesel sales have started in Hong Kong on Wednesday with a small lot heard traded at $214 a tonne, on a cost-and-freight basis.
The last deal sold to a Chinese buyer was at $216 a tonne, down from the highs in early December at $263.
