August 26, 2014
Atlantic Coast jet fuel differentials dropped 2.50 cents Tuesday following a sharp spike the previous day.
Platts assessed New York barges at NYMEX September ULSD futures plus 19 cents/gal. That was down from 21.50 cents/gal Monday, when prices rallied 10.75 cents/gal.
But on Tuesday, the market went quiet, with participants eyeing a Buckeye Pipeline issue and slip in Gulf Coast prices.
"Bids are hiding out with the Gulf Coast coming off a little," one USAC source said.
Gulf Coast jet fuel was assessed Monday 3 cents/gal backwardated on the roll to Colonial's 49th shipping cycle, which became the prompt cycle Tuesday and increased about 50 points during the day to an assessment at October ULSD futures plus 1.30 cents/gal.
Buckeye Pipeline, which carries jet fuel the final leg into New York regional airports, shut its Linden, New Jersey, terminal most of the day Tuesday for integrity testing related to a spill of 3,000 gallons of jet fuel last week. The Linden terminal is a key product supply hub for the New York Harbor market.
US jet fuel stocks are tight, with East Coast stocks down 12% year over year at 9.23 million barrels the week ending August 15, according to the most recent US Energy Information Administration data.
The region's stocks were drawn down on exports to Canada, most recently with a cargo on the Seto Express fixed by Glencore. Another cargo was fixed to Canada for late August, again by Glencore, a shipping source said.
But another shipping source said Venezuela fixed four ships to load mid- to late August, with at least two of them heading to the Atlantic Coast.
The West Coast was also looking at import relief, including two larger-than-normal ships, the Venus R and Summit Africa, expected in Los Angeles from South Korea in the first week of September. Several sources said Morgan Stanley was bringing jet fuel on the ships, each capable of carrying 500,000 barrels.
Los Angeles jet fuel fell 1 cent to NYMEX ULSD plus 8.50 cents/gal Tuesday, and has dropped 11 cents since August 14.
A West Coast source said BP's jet-centric Cherry Point refinery in Washington state was returning from maintenance that started in late June. A BP spokesman did not return a call for comment.
Russian prices firm on demand, refinery outages
Russian domestic jet prices have firmed over the past month, both on an FCA basis and at airports, as strong seasonal demand was countered by faltering supply due to refinery outages, while exports have also been going strong, according to sources.
The price of jet basis FCA Yaroslavl in Russia's Central Federal District surged from around Rb27,813/mt ($770.4/mt) on June 11 to Rb32,000/mt, according to the Moscow-based St. Petersburg exchange (SPIMEX).
Separately, prices of 1 mt of jet fuel at 30 Russian airports gained Rb1,000-4,000/mt, or 6-7% on average between June and August, according to Russia's Federal Agency for air traffic also dubbed Rosaviazia.
The "unexpected surge" had not been factored in by airlines and they may have to pass the increase on to passengers, Rosaviazia said.
Market players have also been baffled by the sustained price increase, which initially was attributed to a refinery outage.
Jet fuel prices started climbing shortly after an incident that brought down Russia's Achinsk refinery in Siberia, traders said. The plant stopped operations following a fire in mid-June at a gas fractionation column and is not expected back until the autumn.
"There was a dearth of supply due to Achinsk," a trader said.
In addition, jet fuel is shipped via rivers during the summer months to the far north regions, which try to stock up while the rivers are open for navigation, adding additional pressure to the supply situation.
"Availability is constrained while shipments to the north are taking place," the source said.
Jet fuel prices first shot up at Angarsk, the closest refinery to Achinsk, which also saw gasoline prices go through the roof at the time.
But jet fuel prices FCA Angarsk have since come off, baffling market players about the ongoing price increases elsewhere.
"Prices at Angarsk came off," said another trader, adding that the reasons behind the surge elsewhere remain "unclear."
Others in the market, however, note that Russian domestic jet fuel prices typically firm in the summer months driven by holiday demand. The levels in August this year are commensurate with the levels reached in August 2013, according to reports.
Further adding pressure on the supply situation, some buyers are starting to stock up on jet fuel, which is later used for blending into winter diesel, according to sources.
But jet fuel cannot be held too long in storage due to its specifications, a source said.
Last but not least, the surge in price has been attributed to reports about higher export flows. Exports of jet showed an 88% increase in the first half of this year, according to recent data by the Federal customs office.
Exports amounted to 723,000 mt in January-June, up from 384,000 mt in the year-ago period, according to data provided by the customs office. Jet fuel production meanwhile, showed only a 12.8% increase in the first six months of the year, amounting to 5.26 million mt, according to energy ministry data.
But according to other estimates, jet exports rose only a tad to 447,000 mt in the first six months and did not significantly dent supply.
Meanwhile, traders said the potential introduction of excise tax for jet fuel, which was previously excise-free, has not played any role in the recent price increase.
Pockets of demand in Europe
Northwest European jet price differentials were slightly higher Tuesday, as pockets of prompt demand amid healthy imports due next month kept fundamentals broadly balanced.
The market appeared to be in a transitional phase, with a lull in activity after the peak summer demand and before refiners enter their turnaround season. Autumn maintenance programs are widely expected to be lighter than a year ago. But a switch in favor of diesel optimization as refiners produce winter-grade ULSD will reduce jet output.
Europe's swing capacity between jet and diesel was around 500,000 mt, one source said. Around two thirds of that is focused on ARA, home to some of the the region's biggest and most complex refineries.
For the first time in several months, BP was not seen bidding for cargoes in Northwest Europe and was also not bidding on the swaps.
BP's buying interest to cover shorts in Belgium, northern France and the UK has been the biggest fundamental driving the market, sources said.
In the shipping market, Cepsa put the Maersk Rhode Island on subjects for a cross-Mediterranean voyage, lifting 30,000 mt August 29, at Worldscale 117.5, sources said. An undisclosed charterer was lining up the SKS Driva for a South Korea to UK Continent voyage, loading 80,000 mt September 4.
The spot arbitrage from the Far East to Europe had been unworkable on paper in recent days, with a better netback available to the US West Coast.
The fixture suggested the charterer had either locked in the move before the economics shifted, or had been able to secure FOB barrels at a lower premium to create a bespoke arbitrage opportunity.
Asian overhang tightens, for now
Healthy jet fuel outflows to the west amid an open arbitrage, coupled with production cutbacks at several regional refineries due to poor margins, has tightened the supply overhang in the Asian jet fuel/kerosene market.
But going forward, market sources said Tuesday that buying interest from Europe will continue to taper off as the peak summer season draws to an end. The expected weaker buying interest has led several Middle Eastern suppliers to scout for alternative homes for their surplus barrels.
According to industry sources, Saudi Aramco Total Refining and Petrochemical Company, or Satorp, was said to have canceled its sell tender for 40,000 mt of jet fuel for loading from Jubail over September 5-10. Further details were not known.
In Asia, growing supply from expanded refining capacity in China has capped jet fuel imports by the Asian giant, sources said. Earlier this week, state-owned China Petroleum and Chemical Corp., or Sinopec, reported refinery throughput of 115.81 million mt for the six months ended June 30, 2014, compared with 115.44 million mt in the corresponding period a year earlier.
The company -- Asia's largest refiner -- produced 71.62 million mt of oil products in the first-half, up 2.7% from the first six months of 2013.
For the kerosene portion, production jumped 19.7% year-on-year to 10.01 million mt to cater to domestic demand.
China has gradually transformed from being a key jet fuel/kerosene buyer in the region to a net exporter since 2012.
Net jet fuel/kerosene exports from the country jumped to 2.64 million mt over January-June this year, from 1.56 million mt in the same period last year.