OREANDA-NEWS. The Asian market was mixed over July, as cracks strengthened across the top and middle of the barrel on the back of strong seasonal demand, amid some supply limitations due to outages of some processing units in the region. On the other hand, the bottom of the barrel crack spread suffered a sharp drop, caused by weaker demand in the bunker and power sector.

 The gasoline crack continued to strengthen in July on the back of firmer regional demand amid a tightening environment. The Asian gasoline market continued bullish, and cracks remained at elevated levels as supplies and stocks were stretched by unscheduled outages at the FCC gasoline producing units in Taiwan, India and South Korea, as well as by support coming from the demand side with firm seasonal import requirements from countries such as Indonesia and Vietnam.

 Additionally, robust seasonal demand in the Middle East has been drawing supplies from India and this is helping to constrain supplies within the Asian market. This supply squeeze is resulting in stock-draws in Asia with light distillate stocks in Singapore remaining low; although during the last weeks they have been recovering due to increasing Chinese gasoline exports to Singapore. Additionally, some export opportunities have arisen to the East African market, with Kenya and Tanzania seeking deliveries for the next months.

 The gasoline crack spread against Dubai crude in Singapore gained USD 1 to average USD 15/b in July. The Asian naphtha market continues to be weak and the crack showed little movement over the month with ample supplies being balanced by steady-to-firm petrochemical demand as well as improving demand from gasoline blenders.

 Looking ahead, the outlook for the naphtha market is uncertain due to bearish supply signals from the expected heavy Western inflows and high Indian exports, while LPG is now being once again priced under naphtha, thereby removing incentives for petrochemical players to switch to cracking naphtha.

 At the middle of the barrel, the gasoil crack continued to extend gains over July on the back of higher seasonal demand supporting fundamentals with the import requirements in the region continue on the rise. The gasoil crack continued gaining ground over the month due to a pickup in demand from regional Asian importers and the Middle East, while several refinery issues that may affect upcoming gasoil loadings also added support.

 The elevated volumes leaving Singapore helped to draw down middle distillate stocks in Singapore, which stood at the lowest levels seen in the last years. The arbitrage from Northeast Asia to Europe was largely closed, however this was more than offset by demand emerging from the Philippines and Africa. The gasoil crack spread in Singapore against Dubai gained almost USD 2 to average around USD 21/b in July.

 Looking forward, gasoil demand could be impacted by the rainy season in the region, taking into consideration that in India the monsoon season typically dents demand from the power and agriculture sectors. At the bottom of the barrel, cracks were pressured as the region continues to suffer from weak power and bunker demand, while residual stocks in Singapore kept rising. The lower bunker demand in Singapore continues to weigh on the market. This declining demand comes primarily from higher efficiency as the latest Port Authority of Singapore data showed vessel arrivals up 7% y-o-y and calls for bunkering were also up 3.3% y-o-y, while total bunker demand in June was down 5% y-o-y.

 Additionally, pressure came from weakening demand from the Japanese power sector, as the major power utilities in the country reduced fuel oil intake by almost 40% y-o-y in the last months. The fuel oil crack spread in Singapore against Dubai showed a sharp loss of more than USD 5 to average minus USD 10/b in July.