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Investors should bet on Singapore refiners increasing their profits from gasoil relative to European refiners, according to Standard Chartered Plc. (STAN)
The bank recommends that clients trade the difference between Singapore and European refining profits by buying the Singapore gasoil crack and selling the gasoil crack on the ICE Futures Europe exchange, Priya N. Balchandani and Koun-Ken Lee, analysts at Standard Chartered in Singapore, said in a report today. The gasoil crack refers to the profit from turning crude into the fuel.
Asia’s demand for the industrial fuel is expected to be bolstered by economic growth in China and India while European consumption of the fuel will have “a skew to the downside,” the analysts said.
“We recommend buying the difference of the Singapore gasoil spread to Dubai crude, against the ICE gasoil spread to ICE Brent at 87 cents a barrel currently, with a price target of $6 a barrel,” the analysts said.
ICE gasoil swaps were at a premium of $13.392 a barrel to Brent at 7:08 p.m. Singapore time. Singapore gasoil’s premium to Dubai crude, a measure of refining profitability in Asia, was at $15 a barrel, according to data from PVM Oil Associates Ltd., a broker.
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