Singapore cracking margins peak to two-year highs on firm HSFO, naphtha

The Singapore oil products Dubai cracking margin rose by 64 cents/barrel to $6.29/b late Wednesday, nearly touching a two-year high on the back of stronger naphtha and fuel oil refining margins, data showed Thursday, January 15.

The previous record high was on February 28, 2013, when the Dubai Singapore Cracking Netback margin, stood at $6.37/b, the data showed.

Refining margins in the city-state have been improving since the second half of 2014, as international crude prices were heading south amid a supply glut in crude oil markets and a weaker demand outlook.

Singapore’s simple refining margins — the difference between the value of the refined oil product and Dubai crude prices — for naphtha and fuel oil have risen sharply, though they still remain in negative territory.

Over the first nine trading sessions this month, front-month 380 CST high sulfur fuel oil swaps versus front-month cash Dubai crude swaps narrowed by $1.40/b to minus $5.89/b, Platts data showed.

Over the same period, front-month 180 CST HSFO swaps versus front-month cash Dubai crude swaps narrowed by $1.45/b to minus $4.91/b.

“Crude is very weak,” a Singapore based trader said. “The [product] market may not be adjusting itself yet with the fast falling crude.”

The sharp uptick in residual simple refining margins could also suggest that run rates in Singapore could be running at lower levels, but this could not be confirmed.

Asia’s oil trading hub has a refining capacity of around 1.4 million b/d.

Meanwhile, the front-month naphtha/Dubai swap spread also rebounded over the same period — the front month crack spread narrowed by 50 cents/b to minus $4.91/b.

“Fundamentally, fuel does not look too hot out here, but with Q1 maintenance in Asia followed by the US in late spring could keep things perky in the medium term,” a Singapore-based fuel oil trader said.

The Asian naphtha market has found some short-term support from expectations of tighter supply in the coming weeks, industry sources said Wednesday.

They estimated that 450,000-500,000 mt of naphtha loading from Northwest Europe, mainly Tuapse and Skikda, which was scheduled for delivery in January has been delayed by two to three weeks due to poor weather conditions.

Market observers added that if refinery issues in the US Gulf Coast continue for an extended period of time, there may not be any cargoes heading to Asia in March.

All yields and netbacks are produced using Platts product assessments and Turner & Mason’s TMMS refinery modeling platform, configured to represent actual processing capabilities in specific regional centers, based on a survey of operating refineries to be updated annually.