May 17, 2013
US jet fuel differentials rose Thursday, on rising demand, both current and forecast, traders said.
Platts assessed Los Angeles jet up 2.75 cents/gal at NYMEX June heating oil futures minus 13 cents/gal based on a trade heard at that level. The Gulf Coast gained 1 cent/gal to minus 15.50 cents/gal, where it traded in the Platts Market on Close assessment process before a final deal at minus 15 cents/gal that was deemed a gap trade and not used in the assessment.
New York barges moved 1.30 cents higher to minus 12.20 cents/gal and Chicago added 1 cent/gal to plus 16.25 cents/gal. Group 3 out of Oklahoma was unchanged at minus 10 cents/gal.
Differentials gained Wednesday after government data showed a draw in US stocks, a drop in production and a sharp rise in implied demand, all bullish signs.
Refiners had increased jet yields to avoid costly renewable fuel credits associated with diesel but not jet fuel. But one trader said the economics of going "max-jet" no longer make sense for refiners.
The demand side was showing signs of picking up going forward.
US airlines will fly a post-recession high volume of passengers this summer, driven in large part by a record number of international travelers, the Airlines for America trade group said Thursday.
Nearly 209 million passengers will travel on US airlines from June through August, or an average of 2.27 million globally every day, A4A said in its annual summer forecast. The travel number is a 1% increase from 2012, and only 4% below the summer 2007 peak of 217.6 million, the group said.
John Heimlich, A4A vice president and chief economist, said 27.4 million people were expected to travel internationally using US airlines, surpassing last summer's record of 26.7 million. Domestically, 181.2 million passengers are expected, compared with 179.9 million in 2011, he said.
"We're narrowing the gap," Heimlich said in a conference call. "To come within 4% of 2007 volumes is very encouraging for the airlines. I don't know if we'll get there, but things are heading in the right direction for the entire customer base."
Heimlich expected flights to be 86% to 87% full, consistent with load factors for the last four years despite more passengers.
"Adding flights this summer is helping keep fullness at same levels," he said.
The high load factors had come as airlines cut capacity due to sharply rising jet fuel costs, now accounting for 35% of costs at US airlines. Jet fuel traders say fuller flights will only translate into more jet fuel demand if airlines start adding flights.
Domestic seats should grow 0.6% year-over-year, but internationally that figure is 2.5%. "That's really the lead driver here," Heimlich said of global growth.
The uptick in flights this summer coincides with an abatement of jet fuel prices over the last month and analysts project relief from the record high fuel prices of 2012, he said.
"There's a restoration of service levels with an increase in seats and flights," Heimlich said. "There's a very strong relationship there."
Rotterdam leads bull charge
FOB Rotterdam barges led the upward charge of European jet prices Thursday, rising for a third consecutive day on tighter local supply.
Outright prices were boosted across the distillate complex after a $26/mt surge on the prompt June ICE 0.1% gasoil futures.
FOB Rotterdam barges were assessed at a premium to ICE gasoil of $65.75/mt, up $4.25/mt.
In Platts Market On Close assessment process, there were four barge bids--two apiece from Morgan Stanley and BP--but no offers.
The four bids were for variations of between 2,000 mt-to-4,000 mt clips, to load from locations within the Flushing-Amsterdam-Rotterdam-Antwerp-Ghent region over May 21-30. All bids reached a price of June gasoil plus $64/mt.
Platts barge assessment is basis Rotterdam, and the additional loading options granted to a potential seller by bids of either ARAG or FARAG attracted normalization of plus $1/mt.
A contango structure was factored in to reach the premium assessment of $65.75/mt.
"I don't think there's much available for the balance month," said one barge source. "I would say refineries are still maxing diesel and flying season is upon us shortly."
A second source noted that refineries have been max diesel for most of 2013, but demand fluctuations had the potential to provide support.
"There does seem to still be decent [cargo] arrivals, but the barges certainly seem a little tighter," said the second source.
For the cargo market, resupplies from the Persian Gulf and India have been in plenty of supply. But there was less availability visible Thursday.
CIF Northwest European cargoes were assessed at a premium of $59.25/mt to ICE gasoil, up $1/mt.
A Morgan Stanley bid for 30,000 mt into Oiltanking Antwerp did not look aggressive with a price of Mean of Platts CIF Cargoes minus $1/mt.
On the sell-side, a BP offer into Rotterdam for early June was not competitive at a price of CCM plus $4/mt. Vitol broke its recent run on the sell-side and did not put any offers in the MOC.
Singapore crack recedes
The Singapore physical jet/kerosene crack against front-month cash Dubai crude receded 43 cents/barrel to $14.36/b Thursday on listless demand.
The market continued on a downward trajectory, reflected in a deeper discount. In the swaps market, June/July jet swaps fell 4 cents/b to minus 27 cents/b.
The cash differential on jet/kerosene cargoes loading out of Singapore ventured deeper into negative territory, inching down 2 cents/b to minus 32 cents/b Thursday.
Bids were absent during the Platts Market on Close assessment process, while three offers were seen from Vitol, BP and Shell.
In the spot market, Saudi Aramco was heard to have sold a full cargo of jet fuel last week loading from Rabigh to a western trading house at a premium of $2.20/b to the Mean of Platts Arab Gulf jet/kerosene assessment, a trader said. It was unclear which dates the cargo was loading.
The trade could not be immediately confirmed.
In term contract discussions, Abu Dhabi's ADNOC is still in negotiations on the renewal of its July-June 2014 term jet contract with existing buyers, with the process expected to be drawn out, market sources said.
"[I] don't think anyone will conclude that fast in view of the poor market," said a trader.
While ADNOC hopes to achieve the same premiums as the existing contract, buyers are unlikely to want to renew at the same levels given the current market weakness, market sources said.
Under the current contract to expire in June, ADNOC had fixed a premium of $2.05/b to the Mean of Platts Arab Gulf jet/kerosene assessments to supply a total 1.8 million mt over the past year to seven buyers.
Stocks of gasoil and jet/kerosene fell 585 million barrels, or 5.8% from the previous week, to stand at a three-week low of 9.529 million barrels in the week ended May 15, data from IE Singapore showed.