OREANDA-NEWS. August 23, 2011. Asia's gas oil market strengthened, with the product's forward curve moving towards backwardation on signs of firmer demand in the region.

The September/October and October/November contracts rose to a slight contango, while the November/December and December/January contracts flipped into backwardation. 

The prospect of stronger Vietnamese demand as the country's Dun Quat refinery remains shut for maintenance has buoyed sentiment, even as high supplies of middle distillates in the region keep a lid on gains, traders said.

Vietnam's PV Oil is seeking 47,000 tonnes of 0.25% sulphur gas oil for end August to early September delivery via a tender, traders said.

The market continues to look for clues on when Formosa's 540,00 barrels-per-day refinery in Mailiao, Taiwan will restart. The closure of the complex over two weeks ago following a fire has helped boost the market, and Formosa has said it is ready to come back online.

However, a restart will depend on a government review this week, although traders said it may be towards the end of August.

Even then, the restart is likely to take place in stages and it was not immediately clear when Asia's fifth-largest refinery will be able to fully restore its diesel exports, estimated at 800,000 tonnes a month.

The resumption of exports from Formosa will likely depress prices, although it could re-open the east-to-west arbitrage window that shut following its closure, traders said.

China's Brightoil Petroleum, a recent entrant into the middle distillates trading arena, was seen buying a gas oil cargo in the physical spot market for a second straight day. Singapore trader Hin Leong, which has been a seller since the start of the month, turned buyer after it picked up a parcel.

The deals were done at higher price levels and helped strengthen the cash differential for gas oil's 0.5 percent sulphur grade for a fourth session to a near one-month high.

Trading volumes in the swaps market continued to be thin, with 100,000 barrels of the September front-month swap transacted at USD 123.40, down from 200,000 barrels a day earlier.

Another 100,000 barrels each of the September/October timespread and September regrade were done.