January 29, 2020 / 8:39 AM / 4 months ago

Asia gasoline prices fall sharply as virus fuels China demand worries

* 92-octane gasoline price posts biggest 1-day drop since Feb 2016

* Refiners’ gasoline margins decline to lowest since June

* Strong LSFO margins may keep gasoline production down

By Seng Li Peng

SINGAPORE, Jan 29 (Reuters) - Asia’s benchmark gasoline price fell the most in nearly four years on Tuesday, while refiners’ profits in making the motor fuel hit seven-month lows as a fast-spreading virus in China sparked worries about demand from the world’s No. 2 oil consumer, sources said.

The death toll from the new coronavirus in China rose sharply on Wednesday while mobility slowed as people stayed indoors to avoid infection and companies asked staff to work from home.

Fears of the spreading virus have pushed airlines around the globe to reduce flights to and from China, leading to a slump in Asia’s jet fuel demand.

Asia’s gasoline margins, which had been under pressure because of ample supplies since December, dropped to $2.94 a barrel on Jan. 28, the lowest since June. GL92-SIN-CRK

The drop was mainly due to a 7.7% fall in 92-octane gasoline prices, the biggest daily percentage loss since February 2016. GL92-SIN

“The situation remains very fluid, but the market seems to be pricing in weaker-than-expected global oil demand growth, despite the expected recovery in global trade compared with 2019,” Citi analysts led by Ed Morse said in a note.

“Regional refining margins could be triply hit by weaker demand due to the outbreak, stronger (fuel) exports from China and potential escalation of geopolitical supply disruptions,” they said, referring to the Libya oil outage.

Still, analysts and industry sources said gasoline margins could stay supported in the short term as Chinese refiners may cut runs or refiners in general could sell very low-sulphur fuel oil (VLSFO) instead of using it to make petrol, with new global rules on marine fuels coming into effect.

“Given the demand for IMO (International Maritime Organization)-compliant fuel and attractive VLSFO cracks (and weakening gasoline cracks), refiners will divert more LSVGO (low-sulphur vacuum gasoil) from FCCU (a gasoline-making unit) operations towards the VLSFO pool instead,” said FGE analyst Sandy Kwa.

China’s gasoline exports slowed to a five-month low in the first month of the year by Jan. 24, after hitting record highs for the seventh straight year in 2019, Refinitiv data showed.

“The global gasoline complex is in a much healthier place this year than it was last year, and whilst a demand downtick in China would be a bearish element, a sustained return to negative gasoline cracks is not likely,” said Kostantsa Rangelova, lead Asia analyst at Vienna-based consultancy JBC Energy.

Reporting by Seng Li Peng Editing by Florence Tan and Subhranshu Sahu

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