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Jet Fuel News
May 28 2015 09:32:00 EDT

Floating storage for aviation fuel is not yet commercially viable in Europe despite a steep contango structure developing on the prompt physical jet market over the past several weeks, market sourc...

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May 28 2015 05:47:00 EDT

Several cargoes on the water and even more scheduled to load in the coming days pushed the Los Angeles jet fuel market down 7.50 cents Wednesday, continuing market backwardation. P...

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May 19 2015 08:44:00 EDT
May 13 2015 09:35:00 EDT
May 12 2015 07:23:00 EDT
May 8 2015 08:04:00 EDT
May 5 2015 07:30:00 EDT
May 1 2015 08:53:00 EDT
Apr 23 2015 22:53:00 EDT
Apr 17 2015 09:45:00 EDT
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Market Commentary

Jet: NWE floating storage not viable

May 28, 2015

Floating storage for aviation fuel is not yet commercially viable in Europe despite a steep contango structure developing on the prompt physical jet market over the past several weeks, market sources said.

Supply-driven weakness has seen deferred barrels pricing well above current spot levels, with the premium for CIF NWE cargoes over the front-month low sulfur gasoil contract assessed as low as $8.75/mt on May 18 -- only marginally off a multi-year low of $6.50/mt on March 10.

As recently as early May, several traders active in the Northwest European market were heard facing demurrage on incoming LR term barrels as storage options for discharge proved hard to find in ARA after sustained stock building there over the past month supported by the contango market structure.

According to a BNP Paribas report on inventory levels, jet stocks in the region were last reported at 5.67 million barrels on May 21, 12.7% higher than four weeks earlier and more than double a year ago.

A combination of high refinery utilization rates in Europe and increased incoming volumes from the Middle East and Russia has added length to the European jet market since the start of the year.

The start-up of commercial operations at ADNOC's upgraded Ruwais refinery in mid-March has seen 95,000 mt of jet offered from the facility roughly every two weeks, with the majority of these volumes ending up in Europe.

An anticipated uptick in Baltic flows to Europe has also begun to materialize, with some 80,000 mt of jet A1 exported from the Russian port of Ust-Luga each month.

With limited ullage, traders said that unless demand for barrels could be found, the market structure would have to weaken further over the prompt to support storing product on the water, as floating storage was not yet a financially viable option.

"You need a contango of about $9/month to break-even on floating...If [physical] continues to put pressure on the front it could happen," one trader said.

Another trader said that while the contango market structure favored inland storage, that was increasingly difficult as the available space was all but filled up. But on the other hand, the contango was insufficient to warrant storage on the water.

An uptick in spot demand saw three cargo bids on the Northwest European cargo market Thursday. The bidding interest could be related to companies buying to fill any available ullage they may have, sources said.

"Floating is not an option [now]," the trader said.

The June/December spread for ICE low sulfur gasoil futures -- against which jet fuel prices -- was seen traded around minus $13.25/mt levels on Thursday morning.

By simultaneously selling into the $37/mt bid and buying the minus $13.25/mt June/December spread, a trader would theoretically lock-in a value of $29.25/mt, given the current premium payable in the spot market. This equates to a contango structure of approximately $4.87/mt a month -- a level which makes floating storage economics impossible, traders said.

"You cannot store jet indefinitely, but you could do it for a year, it costs about $25,000 per day," one of the traders added.

With 217 days remaining until January 1, a $25,000/day floating storage cost would incur a hefty cost of around $5.45 million. If a trader were able to lock-in a contango of $29.25/mt, this would yield $1.765 million on a 60,000 mt cargo -- a fairly typical cargo size given the economics of the long-haul jet flow from the Persian Gulf into Northwest Europe.

"If we get through the [summer] demand season without drawing [stocks], then theoretically we should go to floating if balances and margins remain as they are," another trader said.

South Korea premiums steady

Higher prices in the US West Coast continued to pull jet fuel/kerosene barrels from Japan and South Korea, said trade sources Thursday.

Valero was heard to have put on subjects the Res Cogitans for loading 60,000 mt of jet fuel from South Korea and moving to the USWC. Another supplier, Chevron was heard to be moving 60,000 mt of jet fuel on board the Petali Lady on the same route.

The higher demand in the USWC has buoyed cash differentials for FOB South Korea jet fuel to minus 30-40 cents/barrel, up from discount of around minus 65 cents/b earlier his month, sources said.

In Asia, buying interest was largely stable with the UAE's Emarat seeking 60,000 mt of jet fuel for delivery to Emoil/Emdad Terminal, Jebel Ali, over July 8-9. The tender closes June 2, with a validity till June 4.

Emarat last bought 60,000 mt of jet fuel for delivery to Jebel Ali over June 1-2 at a premium of around $3/b to the monthly average of Mean of Platts Arab Gulf jet fuel/kerosene assessments, CIF. Shell was heard to be the seller.

In other news, China's apparent oil demand in April grew 5.4% year on year to 42.89 million mt, or an average of 10.48 million b/d, led by strong rises in light-ends and jet fuel/kerosene, according to Platts calculations Wednesday based on final government data released recently.

Jet fuel/kerosene registered strong apparent demand, posting double-digit growth year on year at 22.3% to 9.35 million mt over January-April this year, up from 7.65 million mt in the same period last year.

Despite robust growth, inflows into the country fell 5.3% compared with the previous year. Sources said that higher output from local refineries to counter weaker demand for co-product gasoil has capped the need for jet fuel/kerosene imports.

At the same time, it has increased the country's ability to export the middle distillate, transforming its status from a regional buyer to a minor exporter.

Jet fuel/kerosene outflows from China over the first four months of this year rose 11.2% year on year to 3.47 million mt, while for the full year 2014 exports had totalled 3.12 million mt.

LA rebounds

The Los Angeles jet fuel market rose Thursday, reversing a six-day trend as Energy Information Administration data revealed lower stocks last week.

Platts assessed the Los Angeles jet fuel differential up 1.75 cents to NYMEX July ULSD plus 12 cents/gal, or an outright $1.9923/gal.

The US West Coast continued to see a decline in stocks the week ended Friday despite continued imports into the region as refinery output remains limited, EIA data showed.

Stocks fell another 84,000 barrels to settle at 7.56 million barrels, the lowest since last August.

Imports continued to provide some relief. The region brought in 59,000 b/d of jet fuel imports, down from an eight-year high of 155,000 b/d the week before.

The New York Harbor jet fuel market moved up Thursday despite a massive stock build on the Atlantic Coast.

Platts assessed New York Harbor barges at NYMEX July ULSD minus 5.50 cents/gal, or $1.8173/gal outright.

The Gulf Coast jet fuel market continued to strengthen as Platts assessed the pipeline differential 80 points higher to NYMEX June ULSD minus 10.45 cents/gal or an outright $1.7650/gal.

The Atlantic Coast added over a million barrels of jet fuel despite having lower refinery production. Stocks in the region topped 10 million barrels for the first time in over three months, reaching 10.30 million barrels, EIA data shows.

Make sense of what is moving the market and why with daily market commentary.

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