May 23, 2013
The Chicago jet fuel differential spiked 4 cents Wednesday as its premium over the US Gulf Coast widened to 35.55 cents, the highest such spread since 2005 for a region feeling the effects of refinery issues.
Platts assessed Chicago at NYMEX June heating oil futures plus 20.25 cents/gal, while the Gulf Coast edged lower to minus 15.30 cents/gal. The NYMEX June contract was assessed at 3:15 p.m. EDT down 5.55 cents to $2.8720/gal.
Chicago has the highest jet fuel price of any major spot market in the world, assessed by Platts at $3.0745/gal Wednesday, or $129.13/b, which was at least $10/b higher than most regions.
For example, for the perennially short Northwest Europe, the CIF cargo assessment was $118.28/b Wednesday.
The Chicago premium has been running 23 cents or higher than the refinery-rich Gulf Coast since April 29, and above 30 cents for the last eight trading days, according to Platts data. A 35.55-cent premium was the highest since a record 46.75 cents on October 19, 2005, during a six-day period that saw the only other dates above 30 cents.
"I don't believe I've seen this for such a prolonged period," one Midwest jet trader said. "We've seen superspikes that brought Chicago to roughly this amount over the Gulf but not for this long."
Supply for all oil products has remained tight in the Midwest due to multiple refining issues.
US Energy Information Administration data released early Wednesday showed Midwest refinery utilization at 83.1% and jet output down 22,000 b/d week-over-week to 202,000 b/d for the reporting week ending May 17. The Midwest produced 254,000 b/d for the same week a year ago. Jet stocks were at 6.43 million barrels, down 326,000 barrels on the week and 834,000 on the year.
Among the refining issues in the Chicago region are lengthy turnarounds at BP's 405,000 b/d refinery in Whiting, Indiana, and ExxonMobil's 248,000 b/d refinery in Joliet, Illinois. The Phillips 66-operated 306,000 b/d Wood River refinery in Roxana, Illinois, also had multiple issues within the past two weeks.
Tightness in the prompt market was also attributed to shipping delays and longer-than-usual transit times on Explorer Pipeline, which runs from the Gulf Coast to Tulsa, Oklahoma, and further to Chicago with a 785,000 b/d capacity.
"It seems like this is the longest time it has been this much over the Gulf Coast," a second jet source said. "It's been about five years since Explorer Pipeline has been full by my recollection. Just can't get enough product into the Chicago market."
Group 3 out of Oklahoma also spiked Wednesday, up 7.50 cents to minus 0.50 cent/gal based on bids heard in the market from a local refiner.
NWE cargo prem jumps
The CIF Northwest European cargo premium to gasoil rallied $3.25/mt to a near four-week high of $66.75/mt midweek, on a surge of buying interest into France and Belgium.
There appeared to be sufficient resupply to meet the shorts showed by Shell into Ghent and BP into Le Havre, but the momentum on Wednesday swung firmly behind the buyers.
Shell's bid of plus $4/mt, or a premium of $66.04/mt, to the Mean of Platts CIF Cargoes proved to be enough to encourage Vitol to sell into the major's basis Ghent indication on prompt June dates. Vitol also sold a second 30,000 mt parcel to BP.
In a contango market, the British major's EFP bid to June plus $64/mt into Le Havre appeared less aggressive, and more flexible. Its laycan of June 6-16 was narrowed by the seller to June 11-15.
A second bid from BP into the same port in northern France and a Morgan Stanley bid into Oiltanking Antwerp went untraded.
Vitol, BP and Shell are all active importers on the arbitrage from the Persian Gulf and India to Europe.
In recent days, sources reported some delays in loading resupply cargoes, which could see some slippage in arrivals. A closed arbitrage could mean those unable to secure additional spot barrels instead entered the domestic market as a buyer.
It was unclear whether BP's switch to the buy-side, after some two months ensconced offering cargoes in the MOC, was to seek temporary cover for shorts or a more decisive shift in the short-term.
Gains on the premium coincided with a fall on the outright price, as gasoil futures turned down on bearish US crude and gasoline stock data.
CIF NWE cargoes were assessed at $933.25/mt (down $5.25/mt). At 16:30 BST (1530 GMT), June gasoil futures were assessed at $866.50/mt (down $8.50/mt), and July ICE Brent was assessed at $103.30/b (down $0.44/b).
Demand also supported the barge market, although airline selling capped premiums from rising above cargoes. FOB Rotterdam barges were assessed at a premium of $66.75/mt (up $2.75/mt) or an outright price of $933.25/mt (up $5.75/mt) -- putting the market at parity to the cargoes.
BP bought two barges of 2,000 mt apiece from Dutch airline KLM, taking both the original offer and reoffer at June gasoil futures plus $65/mt.
Overall contango in the jet complex widened, as prompt gasoil contango more than doubled, and contango in the NWE jet cargo swaps spread was assessed wider by 25 cents at $3/mt.
In the Mediterranean, closed arbitrage routes from the Red Sea into the region and a slow pick-up in prompt demand ahead of the peak summer months tightened local supply. There were no fresh tenders heard from the usual outlets in North Africa.
"All the Med is depending on Med cargoes," said one regional source. "The arb isn't working...I think it's mainly up to the first week of June that demand is there. Into Italy and Spain."
Singapore crack jumps, then pulls back
The Singapore physical jet/kerosene crack against front-month cash Dubai crude retreated from a two-month high, falling 40 cents/b to $15.64/b Wednesday.
The physical regrade -- the spread between gasoil and jet fuel -- inched up 6 cents/b from Tuesday to minus $1.70/b. So far in May, the physical regrade has averaged minus $1.22/b, compared with an average of minus 57 cents/b in April.
The negative regrade has led Asian refiners to maximize gasoil production over jet fuel.
Statistics released Wednesday by the Petroleum Association of Japan showed an increase in gasoil production and a decrease in jet/kerosene output in the country week on week. Japan's May 12-18 jet fuel production fell 7.6% from the previous week to 2.09 million barrels and its weekly kerosene output dropped 20.2% to 1.08 million barrels.
Gasoil production, meanwhile, inched up 0.2% to 5.26 million barrels over the same period. Stock levels were mixed, with jet stocks seen lower but kerosene stocks up.
Japan's inventory of jet fuel was 2.3% lower than the previous week to stand at 5.95 million barrels on May 18. Kerosene stocks, however, inched up 0.8% week on week to 10.33 million barrels over the same period.