Pakistan Strategy: Weak fuels demand clouds outlook for cracks , (AKD Daily, Feb 28, 2020)
Pakistan Strategy: Weak fuels demand clouds outlook for cracks
- CY20 starts on a weak footing for POL product cracks, as Jan’19 HSD/HSFO crack to Arab Light for the month averaged US$+6.6/-23.0/bbl below FY20TD average of US$+9.57/-US$17.6/bbl in a sign of depressed downstream demand amidst moderate refinery production runs, while crude volatility dampened spreads (Jan’20/FY20TD Arab Light average of US$67.8/64.7/bbl)
- HSFO cracks improved 29%MoM but remained firmly in the red (continuing double digit negative spreads into fourth consecutive month), where the firm month of IMO-2020 implementation was met with lower than expected demand from marine fuels for HSFO alternatives (VLSFO, HSD), leading to some crack recovery, while futures indicate continued backwardation
- MS (RON92) cracks weakened considerably during Jan’19, where higher output from Chinese refiners amidst slowing demand has led to higher exports (reaching record highs in Jan’20), where major markets in Asia are also facing demand constraints, likely to deplete cracks further during 1QCY20, keeping cracks in the red for MS
- OMCs face a Catch-22 scenario, where lower ex-refinery prices lead to inventory write-downs, while any reduction in pump prices are accretive to organic demand. PSO and APL are well integrated players with stable downstream customer base to weather any prolonged down cycle for POL product demand.
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