Singapore gasoline prices to be firmer

The margins for gasoil (diesel) and jet fuel in Singapore widened from late 2014 and peaked at a 6-year high in early 2015. While not as strong, the overall Dubai crack (refining margin of Dubai crude imported into Singapore) also peaked in early 2015. 

By comparison refining margins for gasoline only started to lift in early 2015 and are now only just off the June peak. The key reason for the recent weakness in diesel prices have been an emerging glut in the diesel market due to a surge in supply out of the Middle East. 

Refineries in Asia are configured to produce 30% to 50% middle distillates (gasoil/diesel/jet fuel) and this increase in supply has come at a time when the region's biggest consumer of diesel, China, has started to slow. 

The resulting increase in gasoil inventories has seen a compression in gasoil prices leading to a collapse in refining margins. In stark contrast, the demand for gasoline in the region has remained quite robust supporting firmer prices.

"In the last few weeks it does appear that gasoline margins may have peaked. Chinese refiners have been maximising gasoline output and that a number of Chinese & Korean refineries are set to return from maintenance. As such, the supply of gasoline in Asia is set to strengthen through the second half of this year which should squeeze refining margins", says Westpac.