High refinery runs across Asia and a huge amount of arbitrage cargoes for March and April arrival have created severe gasoline oversupplies that have defied the product's seasonal price patterns.

"We may not see a gasoline summer peak this year," a trader in the city state said. The benchmark FOB Singapore 92 RON gasoline crack against front-month Brent futures stood at $7.52/b at the Asian close Friday, 55.82% lower from the year-to-date high of $17.02/b saw on January 12. The sharp downward trend in cracks is highly unusual for the fuel's seasonal price movement, which usually starts picking up towards summer as demand goes up and supplies tighten due to turnarounds.

HIGH REFINERY RUNS

The refinery turnaround schedule is light so far this year with most producers incentivised to run their units at high or full levels to cash in on higher light-ends margins, despite the sluggish middle distillates market.

Higher refinery run rates have led to larger export volumes from North Asian countries, with first-quarter shipments up more than 50% year on year from China, about 20% each from Japan and Taiwan, and more than 10% from South Korea, customs data showed.

These cargoes were more than enough to meet all the importing countries' increased demand, with some parcels having to head outside of Asia to look for outlets.

Adding to the crowded supply scene was arbitrage cargoes brought in from Europe and the US.

Switching from winter to summer specifications rendered some western gasoline unusable in their markets. This coupled with already high inventories there had encouraged traders to move these surpluses over to Asia to look for opportunities.

Loaded on Long Range-sized vessels, these gasoline cargoes are of lower RON and specifications barely suitable for most importing countries here except Indonesia.

The cargoes now floating on Singapore seas could amount to between 3 million and 4 million barrels, some market participants estimated.

This is on top of the 14 million-15 million barrels of light distillates in Singapore's onshore storage. LOWER INDONESIAN IMPORTS

The temporarily unwanted inflows coincided with lower-than-usual demand from Asia's top importer, Indonesia, which is expected to import less than 7 million barrels of its most widely used 88 RON gasoline in both April and May.

Ever since the country's state-owned Pertamina started operations at two new domestic gasoline units last year, the country's import volume has fallen sharply.

Despite peak demand coming in early June with Ramadan, market participants were not expecting Pertamina to significantly stock up in May as the country's limited storage spaces are already relatively full.

Import increases could come later in June as Pertamina replenishes stocks.

Only by then can the cargoes now floating at sea be absorbed, market participants said.

The Month 1/Month 2 inter-month spread on the gasoline swap market, an important indicator on supply and demand balance, has been negative since January 13.

The three-month long contango structure to date is unprecedented since October 2008, the earliest Platts records available.

Last year's contango lasted 40 days and the spread flipped positive by end-February. It was mostly positive for the whole of 2014.

Its inability to turn to backwardation by now implies market participants' expectations of prolonged oversupply in the market.

--Dexter Wang, dex.wang@platts.com
--Edited by Jonathan Loades-Carter, jonathan.carter@platts.com

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