Asian gasoil prices are expected to outperform those of other refined products in the run-up to year-end, as demand from industry and power generators give it an edge over other transportation fuels that still face mobility restrictions.

Steady arbitrage demand from Europe ahead of winter and reduced exports from China have boosted gasoil prices in Asia in recent weeks, propelling spot gasoil to its highest in three years.

Traders believe the strength may persist for at least another couple of months.

“It’s possible gasoil will outperform the rest of the complex in the near term, especially gasoline, as we are heading into the winter season which will have some impact on mogas (gasoline) demand,” a Singapore-based gasoil trader said.

“Plus, there is demand for diesel from power generators.”

Refining profit margins for the benchmark 10 ppm gasoil grade in Singapore, which have surged nearly 60% in the last month, are currently 17% above their five-year seasonal average for this time of year, Refinitiv data showed.

“Gasoil prices appear to be being pulled higher as surging prices of coal and LNG are driving up demand for oil-based alternatives for the purpose of power generation, particularly across most of the region’s emerging economies,” said Peter Lee, senior oil and gas analyst at Fitch Solutions.

“There is potential for gasoil to outperform gasoline in the near term, as industrial demand gradually rebounds from COVID-19-related headwinds, while governments remain wary of premature easing of mobility restrictions.”

Gasoil supplies are expected to remain tight in the near term as refiners grapple with high crude oil prices, while any increased output from refineries returning from maintenance shutdowns would be used up by recovering demand, traders and analysts said.

“I guess the current strength (in gasoil) won’t be fizzling out soon as supply is lagging behind. Refineries who had spare capacity must have ramped up already,” a middle distillate trader in South Korea said.

Reduced shipments from China since Beijing slashed fuel export quotas earlier this year, along with gathering industrial momentum in India, are further underpinning gasoil sentiment.

“In China, many Shandong independent refiners had initially planned to raise throughput in September to capture the seasonal strength in gasoil demand, but their plans have been stymied by the recent measures,” FGE oil analyst YaWen Lu said.

“The Asian middle distillate complex will remain supported by firm gasoil fundamentals and a seasonal increase in North Asian kerosene demand.”

Marex Media