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Asia Products Outlook-Rebound eyed, fuel oil firm

SINGAPORE: The Asian oil products market is eyeing a rebound this week after a shakeout of market bears in last week's sharp price decline, traders said on Monday.

Singapore's export refiners, which are expected to keep run cuts in April, would help firm up tightly supplied gas oil and fuel oil markets, they said.

"The market will strengthen again, but it's hard to tell," one gas oil trader with a European oil company said.

"Refiners will have a temptation to raise runs but I think they won't do it in the short term."

Earlier in March one of Asia's key export refiners, Shell Singapore, had cut runs to a record low of just 47 percent of its 435,000 barrels-per-day (bpd) capacity because of poor forward margins and a tight crude market.

Traders said the markets were still steeply backwardated and this was an incentive for keeping run cuts.

Traders said refinery runs may rise in latter months as a crude oil supply hike could help Asian refining margins.

The market was watching the Opec's members meeting in Vienna on Monday for details on an expected output hike.

Opec sources said over the weekend it could raise output by a combined 1.5 million bpd from April, but still below consumer countries calls for hikes of some two to 2.5 million bpd.

CHINA GIVING FUEL OIL A FLOOR TO START

Products faced uneven prospects for a rebound, with fuel oil likely to be the star performer, traders said.

Fuel oil prices, which lost more than $40 per tonne since peaking at $200 on March 8, started to rebound from last Friday.

Traders said a key buyer, China, was returning to bottom pick the market amid tighter Singapore inventories.

South Korean refiners, a major exporter, have also cut short fuel supplies, with several planning maintenance shutdowns in the second quarter.

Other Korean refiners have cut runs as domestic heating oil demand eased with the passing of peak winter cold weather.

GAS OIL STILL SEEN PRICEY

Traders said gas oil was still a little overpriced compared to Western markets, and this could hamper strength.

The East-West spread, which favoured the East at the moment, would prevent arbitrage cargoes of Middle East gas oil to Latin American and Mediterranean markets, which had provided much market relief in the absence of India buying.

"The value in itself is still too high for fundamentals. It needs to come off lower or gas oil cannot move out," one Singapore-based trader said.

India's state-owned IOC was not expected to import any diesel in April and May, after surprising with bumper buys in the first three months of the year, traders said.

But if Singapore trader Hin Leong Trading, which had been aggressively buying gas oil for the last few weeks, was still out to bid the prompt market, there were few that could genuinely offer the market down, traders said.

Hin Leong has bought up to 750,000 barrels from the Singapore cash market alone last week.

The trader was seen supplying good regular gas oil demand from Vietnam and Indonesia.-Reuters