Asia gasoline swap crack slides 86% on day to 2-year low as demand falters

The Asian gasoline swap crack -- a measure of the product's relative strength to crude – slumped 86% day on day to a more than two-year low Aug. 31, S&P Global Commodity Insights data showed, as regional supply outstripped demand and recessionary fears further weighed on sentiment.

The front month September FOB Singapore 92 RON gasoline crack against Dubai swaps was assessed at 79 cents/b at the 0830 GMT Asian close Aug. 31, down $4.86/b on the day and plunging from the start of the month when it settled at $12.24/b, S&P Global data showed. The crack was last lower at 19 cents/b on June 2, 2020.

Weakness in the Asian gasoline market was also seen in the cargo market, with the physical FOB Singapore gasoline crack spread against front month Dubai crude edging lower, indicating that earlier gains in crude prices outpaced those for gasoline.

At the Asian close Aug. 31, the crack was assessed at 54 cents/b, down $5.72/b on the day, and down 95.19% since Aug. 1, when it settled at $11.20/b, S&P Global data showed.

Industry sources attributed the decline in crack values to weak gasoline demand from Indonesia, one of Asia's largest buyers of gasoline. The country was heard deferring incoming gasoline cargoes totaling 1.5 million barrels due for September delivery to October, industry sources said.

Market analysts said demand for oil products was expected to remain choppy in the coming months on recession fears after the US Federal Reserve chair Jerome Powell reiterated Aug. 26 that the central bank "will do what it takes" to get inflation down to a 2% target.

A 75-basis point rate hike is widely expected at the next FOMC meeting over Sept. 20-21. A higher interest rate increase could slow economic growth to control inflation, which could potentially lead to weaker demand, market analysts said.

"Other than the concerns over more aggressive Fed tightening, market also has to contend with further downside risk to China's growth as it tightened COVID-19 curbs," UOB Global Economics & Markets Research analysts said.

Demand concerns also resurfaced after authorities in several major Chinese cities, including Tianjin and Dalian, and neighborhoods in Shenzhen and Hebei province ordered residents to stay home or undergo mass testing after a rise in COVID-19 cases.

Elsewhere, demand from the US was also expected to fall as the peak summer driving season comes to a close in September, with market sources expecting a further slowdown in driving activity as the Northern Hemisphere approaches the winter season.

On the supply side, Asian gasoline supplies were expected to tighten amid scheduled turnarounds at South Korea's refineries in September, market sources said.

Against this backdrop, Platts front month FOB Singapore 92 RON gasoline time spread -- an indication of near-term sentiment -- fell $1.07/b day on day to $2.13/b at the Asian close Aug. 31, S&P Global data showed.

Further along the derivatives curve, the Platts front quarter FOB Singapore 92 RON gasoline time spread was assessed at $26.90/b Aug. 31, down $4.10/b on the day, the data showed.