* Gasoil cracks hit near 10-month high last week
* Market eyes IMO 2020 demand for low-sulphur fuels
* Saudi Arabia attack sparks supply concerns
* VLSFO stalks gasoil's lead in IMO switch
By Koustav Samanta
SINGAPORE, Sept 18 (Reuters) - Asian refining profit margins
for gasoil have surged to their highest levels for the month of
September in six years, buoyed by expectations for higher demand
as the shipping industry looks ahead to switching to cleaner
marine fuels next year.
New regulations from the International Maritime Organization
(IMO) will force shippers to reduce the sulphur content in fuels
used in their vessels starting from Jan. 1, 2020, and one way to
do that is to switch to low-sulphur gasoil.
Refining profit margins, also known as cracks, for gasoil
with a sulphur content of 10 parts per million (ppm)
GO10SGCKMc1 , are currently at their strongest September levels
since at least 2013, Refinitiv Eikon data showed.
The cracks for the benchmark gasoil grade also hit a near
10-month high of $18.52 a barrel over Dubai crude last week.
"Gasoil cracks receive structural supports ahead of IMO 2020
as some traders are building up inventories for low sulphur
blending components in trading hubs," said Vima Jayabalan,
research director at consultancy Wood Mackenzie.
IMO 2020 is expected to lift gasoil demand by 1.4 million to
2 million barrels per day (bpd), according to industry analysts.
The recent attack on Saudi Arabian oil facilities could also
tighten gasoil supplies in Asia, especially ahead of the IMO
demand surge, further boosting the margins, trade sources said.
The attacks on state-owned Saudi Aramco's crude-processing
facilities at Abqaiq and Khurais cut output by 5.7 million bpd
and threw into doubt its ability to maintain oil exports,
although the return to full production may happen faster than
originally expected.
"The Saudi attack obviously sparks worries over supply
shortfalls (in Asia)," a Seoul-based trader said on Wednesday,
declining to be identified as he is not authorised to speak with
media.
TOO BULLISH ON GASOIL?
"The key driver behind bullish middle distillates is
anticipated demand from IMO 2020. However, we believe that the
market is overly bullish," said Richard Gorry, managing director
at JBC Energy Asia.
When new global rules limiting the amount of sulphur in
shipping fuels were announced, marine gasoil was declared the
early winner since most grades readily meet the new 0.5% limit
on sulphur content.
But with about 100 days remaining before the IMO rules come
into force, analysts and traders increasingly agree that
very-low-sulphur fuel oil (VLSFO) will likely become shippers'
mainstream fuel as it is cheaper and also compliant.
"We would expect middle distillate cracks to weaken from
January onwards. Obviously this is also a major risk for those
refiners and others who believe that IMO will be very good for
gasoil," Gorry said.
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