Refiners in India have strategically altered their oil products output to maximize gasoil yields, as new cokers and robust margins in international markets have provided them an opportunity to lift both output and exports of the middle distillate. Traders and analysts said the growth in gasoil production, which has risen by an unusually high rate of 8% year on year in the first seven months, would maintain a similar momentum for the rest of the year. But exports could slow during the rest of the year as domestic demand recovers after the monsoon season.
“India’s gasoil exports have been rising this year as refiners have raised output of the product over gasoline due to attractive margins,” said Lim Jit Yang, director for Asia at S&P Global Platts Analytics. “Furthermore, India’s domestic gasoline demand was growing at a very strong pace of nearly 10% year on year over January-July, while gasoil demand growth was more modest at 6% over the same period. This also helped gasoil exports,” he said.
The Asian gasoil swap crack — the spread between the front-month 10 ppm sulfur gasoil derivative and front-month Dubai crude derivative — is currently hovering at a three-month high, reflecting the strength in the gasoil market. At the Asian close Tuesday, the gasoil crack stood at $16.48/b, up from $15.97/b seen a week ago, and up 14% from the start of the month.
MIDDLE DISTILLATE FOCUS
On the production side, gasoil’s gain has been gasoline’s loss. India’s gasoil production rose by 171,000 b/d to 2.3 million b/d over January-July, a year-on-year growth of 8%. On the other hand, gasoline output in the same period rose by 31,000 b/d to 911,000 b/d, a year-on-year growth of only 3.5%. “There has been a significant shift in overall product yields, away from fuel oil to maximize middle distillates,” said Senthil Kumaran, senior oil analyst at Facts Global Energy.
Cokers at Bharat Petroleum Corporation Limited’s Kochi refinery and Indian Oil Corporation’s Paradip refinery have ramped up to their full rates this year, while Chennai Petroleum Corporation had added a coker earlier this year as well. “This reduced fuel oil output, while boosting production of distillates. Temporary length in gasoil resulted in higher gasoil exports by India over H1 2018. Also, crude runs have been consistently rising since the beginning of this year, largely due to recent expansions at BPCL and stable operations at Paradip,” Kumaran added.
India’s refinery runs averaged 5.2 million b/d over January-July, a growth of about 5.2% year on year. “Diesel yields have increased due to several coker additions. Stronger markets this year compared to gasoline has also incentivized refiners to maximize diesel production. This trend will continue through 2020,” said Nevyn Nah, oil products analyst at Energy Aspects.
EXPORT OUTLOOK
Analysts said the trend of higher gasoil production could continue in the near to medium term as domestic demand is expected to remain robust over the next year. India is scheduled to hold general elections in 2019, when demand for diesel normally shoots up. Gasoil consumption growth is expected to be particularly strong in Q4 2018, with provincial elections planned in some states. Analysts added that a force majeure at Reliance and ongoing maintenance at the Bina refinery of Bharat Oman Refineries would result in a pull back in gasoil supplies over the next few months. In addition, Nayara’s Vadinar refinery is expected to shut mid-November for maintenance.
“With all these developments, we expect gasoil exports to trend lower moving forward,” FGE’s Kumaran said. Platts Analytics’ Lim said: “India’s demand for diesel is expected to pick up after the monsoon season, and exports of the product are likely to ease.” India’s domestic demand for diesel witnesses a seasonal downturn during the monsoon season, when traveling is reduced due to heavy rains and hydro power generation is used instead of diesel.
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