September 18, 2014
The US Gulf Coast jet differential jumped 2.25 cents Thursday as buyers took advantage of outright prices that touched lows unseen since spring 2013 for all markets except Los Angeles, which was its lowest since summer 2012.
Platts assessed benchmark Gulf Coast jet at NYMEX October ULSD futures minus 1.50 cents/gal, New York barges down 25 points at plus 50 points/gal, Chicago jet down 1 cent at plus 6 cents/gal, Group 3 out of Oklahoma unchanged at minus 4 cents/gal, and Los Angeles jet up 25 points at minus 2.50 cents/gal.
The differential spike in the Gulf Coast, however, wasn't enough to offset a 2.36-cent drop in the underlying futures, assessed by Platts at $2.7163/gal as of 3:15 pm EDT down.
A fuel buyer for a US airline said the low flat prices are finally bringing out buyers for reasons ranging from renewed hedging to restocking tanks drawn down to 18-year lows in August.
"I think it may be driven by inventory levels," he said.
As for hedging, he said. "I can't speak of other airlines, but we've been increasing our positions."
European barges see sparse selling
European selling interest was limited Thursday, sources said.
"I believe possibly sellers are happy to hold the barrels themselves with contango seen, unless there is aggressive buying in market," a trader said.
With barge premiums recently seen below cargoes, some sources said this trend discouraged selling in the barge market.
"People prefer to sell cargoes these day, they sell barges only if they have to," a second trader said.
Meanwhile the cargo market remained balanced to long amid uninterrupted re-supply flows into the region. Re-routing of arbitrage flows to the US remained hampered by spec and logistical issues, sources said, with higher flash-point product particularly constrained.
With domestic demand subsiding and external outlets limited, the cargo market in Europe remained well-offered. While cargo buyers remained on the sidelines, there was no overwhelming length in the market, sources said.
Modest contango and a lack of severe ullage constraints continued to accommodate stock taking, sources said.
"We are also heading into the heating season now, which is an extra tier of demand [that could provide support]. We are already loading a cargo of DPK and there are already some requests for kerosene deliveries in the market...I am curious to find out how the heating season develops," a second trader said.
Overall underlying demand for jet remained muted. A healthy off-take was reported in locations such Gavle, where jet was used as feedstock for ULSD blending, sources said.
China boost adds to bearish supply
The jet fuel/kerosene market in Asia continued to be pressured by lackluster buying interest amid a closed East-West arbitrage window and ballooning spot supply, mainly from China and the Middle East.
China for one, has continued to significantly boost production of transport fuels including jet fuel/kerosene in August on the back of higher refinery runs, according to latest monthly data from the National Bureau of Statistics.
As with July, jet fuel/kerosene output led the way with a 19.3% year-on-year rise in production last month to 2.7 million mt. Jet fuel/kerosene's monthly production growth has now been in the double-digits since November 2013 as refiners adjust their yields to reduce the output of gasoil, which is facing a decline in demand due to slowing economic growth.
Market observers noted that the higher output has led many suppliers to export the middle distillate. State-owned China National Offshore Oil Corp., or CNOOC, for example, has exported around 32,000-33,000 mt of jet fuel from its 12 million mt/year (240,000 b/d) Huizhou refinery in southern Guangdong province in September, a refinery source said Wednesday.
The company shipped out its first 12,000-mt jet fuel export cargo from the Huizhou refinery on September 5, with the cargo bound for Hong Kong, Platts reported earlier.
CNOOC was granted 110,000 mt of oil products export quota for the first time in late July, comprising 20,000 mt for gasoline, 40,000 mt gasoil, 35,000 mt jet fuel and 15,000 mt naphtha.
But going forward, sources said heating demand ahead of winter season in Northern Hemisphere could halt the downtrend in the jet fuel/kerosene market.