November 19, 2014
US Atlantic Coast jet fuel continued in a steep climb Wednesday, November 19, further widening the spread from the US Gulf Coast.
Platts assessed USAC jet fuel up 3.30 cents to NYMEX December ULSD futures plus 11.80 cents/gal in the third consecutive day of stronger jet fuel. Since Monday jet fuel has risen 8.05 cents.
Wednesday's increase comes after the US Energy Information Administration released data showing reduced stocks in the US -- total stocks slipped 212,000 barrels to 35.94 million barrels, the lowest since 34.64 million barrels on August 29.
The differential on the USGC also climbed, though its 1-cent increase could not keep pace with the USAC. Platts assessed USGC jet fuel at minus 11.75 cents/gal.
These moves brought the spread between those regions to 23.55 cents/gal, the 10th consecutive day it has widened, keeping the arbitrage wide open from the USGC.
European spec change may lure imports
The US has yet to see jet fuel exports increase to a key European market short of supplies, but that may still happen with some spec changes on the way in Europe, Toby Davies, Vitol Aviation's general manager, said Wednesday as he outlined jet fuel flows worldwide to the IATA jet fuel forum.
The US -- a net importer just five years ago -- has seen growing exports to Latin America, Canada and West Africa, but big flows to Europe have remained elusive, Davies told a panel discussion at the forum in Dubai.
Europe dropped a 4.7% tariff on US jet fuel imports that many thought would open the door and boost those exports. But Davies said the pricing arbitrage never emerged, at least to the point where it would overcome spec problems on the fuel.
"There is more arbitrage from South Korea and the Arab Gulf," Davies said. "We thought more would flow from the US to Europe. But that simply didn't happen."
The US mostly makes Jet A, while Europe generally requires Jet A-1 as set out by Defstan 91-91 standards.
The main difference is a lower freezing point and several required additives. Davies said changes proposed to Defstan specs could take place next year that would make it easier to ship US product to European specs.
The Defstan proposal involved putting in additives after the refinery process instead of during it, said Mike Farmery of aviation fuel consultancy Clear and Bright.
"That should make it easier for US refineries," he said. "Defstan change has lost momentum [but] it's going to happen sometime next year."
Davies said such a change could be enough to spur more US exports to Europe, especially given that the voyage from the Far East could take as long as 40 days.
He said jet fuel also is being carried by bigger ships than before, with more LR1 and LR2 sizes that can carry up to 120,000 metric tons, compared with the normal 30-40,000 mt MR tankers. Vitol has the only US port -- in Florida -- that can handle LR2s, but more US ports can handle LR1s, he said, and both sizes are common in Asia and the Middle East.
European demand is 64 million mt a year, and has to import 18-20 million mt, probably a third from the Middle East, he said.
But at any one time, there is an average of 82 tankers on the water carrying about 5 million mt of jet fuel worth about $4.75 billion.
Davies noted that out of a total global consumption of 300 million mt, nearly a third of that is traded by arbitrage cargoes. Besides Vitol, Shell, BP, Valero, Morgan Stanley and Trafigura are also active.
The jet fuel cargo business, however, is defined by low margins, fairly standardized specifications and well-defined short markets, such in Europe, he said.
Steve Anderson of Air BP argued for one global spec on jet fuel, but said neither the US or the rest of the world wants to change the freezing point.
"We could do a good service to the industry if we could come up with a global specification that we could all use, especially with the amount of movement around the world," Anderson said.
European supply eases
Easing supply pressure in the Northwest European spot jet cargo market saw barge premiums close at their lowest in over five months Wednesday.
FOB cargoes were assessed at a $51/mt premium to ICE gasoil, down 75 cents/mt on the day, and down from $68.75/mt October 31.
Thin incremental demand from end-users, steady availability to airlines, sustained market backwardation on the forward curve structure, and some overbuying of kerosene last month, were all factors, traders said.
"I am seeing some buyers look to cancel or delay deals due to the mild weather," one source said.
Cargo premiums also continued to fall, while finding some support from prompt demand into Thames for mid-December arrival.
Spot arbitrage opportunities continued to look unworkable on paper from the Persian Gulf, as the Asian jet market remained supported.
Winter demand lifts Asia
Asian jet/kerosene cash differentials have risen this week, boosted by North Asian winter demand and limited regional supplies.
Singapore jet/kero was assessed at a 93 cents/barrel premium to Mean of Platts Singapore Wednesday, down a penny on the day, but up from a 67 cents/b premium Friday.
In data out Wednesday, Japan's refineries produced 2.86 million barrels of kerosene during the November 9-15 week, up 29.2% from the previous week, the Petroleum Association of Japan said. This was up 3.4% from a year ago, Platts data showed.
The country was hit by a cold snap during the reporting week, which has led to expectations of a pick-up in kerosene demand. Kerosene is used as heating oil in Japan, and its demand peaks over December-February for heating purposes.
Local refiners typically start increasing kerosene production ahead of this period.
As of November 15, Japan had 19.75 million barrels of kerosene in stock, up 2.2% week on week and up 1.4% year on year, according to PAJ.
Stocks of jet fuel -- which has similar specifications to kerosene -- declined 6.1% week on week to 5.70 million barrels but were up 6.7% year on year.
Japanese refiners also exported 1.03 million barrels of jet fuel during the week ended November 15, up 67.1% week on week, PAJ said.
Lukoil was seen to have fixed the Maersk Murotsu to ship 35,000 mt of jet fuel for prompt loading from Japan to the US, according to a shipping fixture.