Recent improvement in refining margins may eventually prompt Asian refiners to try to capture more profits by producing more volume, traders said.

That would most likely result in a crude price hike, followed by a products price increase which would carry on until oil product prices drop under the weight of supply overhangs. Traders said that gas oil prices in the West looked set to continue their rise this week which may allow additional East/West arbitrage opportunities.

Sources said they expect to see long-haul cargoes fixed this week from Asia to destinations mainly in South America, but warned that the arbitrage window could close at anytime.

Although the market was fundamentally weak, traders said sentiment was fickle in the face of the crude and products rally seen last week which caused traders to hoardcargoes.

Traders said it remains to be seen whether or not buyers were scared enough of persistent price rises to start buying now, or if they would wait and see.

Fuel oil sentiment was strong in Asia due to renewed demand and tighter supply. But contrary to gas oil, its strength may attract more cargoes from South America to Asia. Sellers may stick to the sidelines this week if prices continue to rally. Buyers dominated Friday's cash market and those participants were expected back early in the week to purchase more.

Prices initially were expected to hold through Monday at around Friday's levels of $88.00 and $85.00 per tonne for 180-cst and 380-cst respectively.

But traders said fuel oil's strength may not be sustainable if refiners increase runs and fear a possible price collapse in the short term.

Fob Singapore naphtha prices were expected to hold gains made last week on the back of continued refinery run cuts, however, those too could be very shortlived if refiners decide to increasethroughput.

Only one 100,000-barrel cargo for second half October lifting is left on offer from Singapore which is expected to command at least a 50-cent per barrel premium due to the recent tightening of October supplies.

However, three Mediterranean arbitrage cargoes, purchased last week, threatened the fragile bullishness in the Asian naphtha market.

Traders said they expected to see further arbitrage cargoes fixed into Asia this week, which will serve to put the brakes on any continued price rise or even reverse it.

The reforming margin, or the naphtha/95-octane spread, was set to continue improving from a low point hit in early-September.

Traders expected that the spread will widen from its present position at $2.00 per barrel towards the profitability breakeven point of $3.00 per barrel, despite oversupply and lack of demand. However, if refiners increase runs, traders said the margin will shrink rapidly.