Asian jet fuel slump forces refiners to clear tanks

SINGAPORE - Asia’s jet-kerosene benchmark spread over gas oil fell to its lowest level in seven months and may weaken further after a mild winter left refiners with surplus stocks that must be cleared by spring, traders said on Monday.

By (Reuters)

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Published: Mon 5 Feb 2007, 4:54 PM

Last updated: Sat 4 Apr 2015, 9:49 PM

The price spread between February jet-kerosene and gas oil swaps -- known as the regrade -- GO-1M-slumped to plus 50 cents a barrel, down nearly $3 from late January and sharply below year-ago levels of more than $12, when a severe winter and refinery hiccups sapped Japanese supplies.

‘Regrade has collapsed because the mild winter in Japan is depressing the jet-kerosene market. Asia is basically long in tanktops,’ a Western trader said.

Japanese refiners were shunning jet-kerosene imports after a mild winter undermined heating fuel demand, leaving inventories at a bloated 4.26 million kilolitres (26.78 million barrels) last week, almost 50 percent higher than at the same time in each 2005 and 2006.

Some refiners resorted to exporting cargoes, a rarity at this time of the year, when imports are the norm.

The Japan Meteorological Agency forecast higher-than-normal temperatures to persist this week even in the prime heating fuel market in northern Japan that saw unseasonably warm weather throughout January. Temperatures ranged from 3 degrees Celsius below to 5 Celsius above normal over the weekend, DTN’s Meteorlogix said, putting energy demand below normal,

South Korean export-oriented refiners had to sell their jet fuel at significantly weaker premiums to outlets on the West Coast of the United States, as Chinese imports for March fell 19 percent from February to below 300,000 tonnes due to a post-Lunar New Year lull.

The Korean premiums were squeezed to 20 cents a barrel to Singapore quotes, on a free-on-board (FOB) South Korea basis, for loading in the latter part of February from earlier sales of plus $0.80-$1.00.

‘Japanese and Korean refiners are desperate to wipe out their (jet) tanks so as to make way for gasoline storage,’ added the trader.

Bullish gas oil

The regrade was in the dumps, partly due to a bullish gas oil market with regional demand outpacing supplies.

A sustained buying binge by market maker Hin Leong in the Singapore cash session helped to bolster gas oil, with January purchases of high-sulphur grades totalling 2.31 million barrels.

‘Hin Leong is acting according to fundamentals. The (gas oil) market is strong and no one could begrudge the trading firm for buying up the cargoes,’ said a trader in Singapore.

Diesel was also buoyed by thin flows of Middle East supplies that were mostly retained to meet rising demand in the booming Gulf economies. A raft of Middle East refinery turnarounds also hampered flows to Asia.

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