September 15, 2014
The Chicago jet fuel differential fell 2 cents Monday, regaining most of a roller-coaster drop after the weekend startup of a refinery unit into a Midwest region where refineries already were running at peak capacity.
Platts assessed Chicago jet at NYMEX October ULSD futures plus 13 cents/gal, compared with plus 15 cents/gal Friday. Sources said Phillips 66 was heard offering at plus 3 cents/gal late Friday but that by mid-Monday, BP had traded at plus 13 cents/gal.
"Whoever bought that plus 13 must have missed the plus 3," one jet trader said.
On Saturday, Phillips 66 said it flared in connection with a unit restart at its 306,000 b/d join venture refinery in Wood River, Illinois. The regulatory report did not include the type of unit.
Sources said some Midwest refineries have had issues, but sources said they weren't sure those materialized given Energy Information Administration data that showed Midwest crude capacity utilization at 97.5% for the week ended September 5.
"They've been running [high] now for almost six months, so that's not surprising," said a second jet trader, who then said BP has had issues at its 413,000 b/d Whiting, Indiana, refinery. "Except for Whiting and that's a recent change."
Refineries, especially in the Midwest, were likely to continue at a run rate of 90% or higher "as long as margins stay high," especially in jet fuel where cracks remain high, said Carl Larry, president at Oil Outlooks.
"You might see a few refineries start to delay work," he said. "If margins are good, they'll put it off until the fall."
Other US jet differentials also fell Monday, with Gulf Coast down 2.25 cents to minus 2.85 cents/gal, New York barges down 2.25 cents to plus 5.25 cents/gal, Group 3 out of Oklahoma down 2 cents to minus 4 cents/gal and Los Angeles jet down 25 points to plus 0.25 cent/gal.
Indonesian demand supportive
Sentiment in the Asian jet/kerosene market was mixed Monday, with some traders saying a surge in Indonesian requirements was providing support and others saying closed arbitrage windows were trapping supply in the region.
Jet/kerosene demand from Indonesia has trebled in September due to the impending shutdown of the 350,000 b/d Cilacap refinery September 20 for 35 days' scheduled maintenance, which some traders said was offering some support to the market.
"Normally, they [Indonesian buyers] only need 100,000-200,000 barrels/month but in September they need 500,000-600,000 barrels in total," said a trader in North Asia.
However other traders said that with both the East-West and East-US West Coast arbitrage windows closed at present due to high freight rates, surplus supply in Asia could not leave the region.
"East-West freight rates are persistently high," said a ship broker in Singapore.
Some traders said Japanese kerosene buying in the lead up to winter for heating purposes could lift market sentiment in the near term, while others doubted it would emerge this year.
"Usually at this time we see some action from Japan for winter jet/kerosene demand but this year, it has been eerily quiet, almost a non-event. This could dampen sentiment for jet," said a North Asia-based trader.
Another trader noted that jet/kerosene stocks in Japan were already high, further decreasing the likelihood that demand would emerge.
In spot tender news, India's Mangalore Refinery and Petrochemicals Ltd. was heard to have sold 40,000 mt of jet fuel to Vitol at a discount of around $1/barrel to the October average of Mean of Platts Singapore jet fuel/kerosene assessments, FOB.
The cargo will be loaded from New Mangalore over October 16-18. MRPL last sold 40,000 mt of jet A-1 for loading September 25-27 from New Mangalore to Vitol at a discount of around 70 cents/b to the monthly average of MOPS jet/kerosene assessments, FOB.
Europe long on supply
Prompt weakness in the European jet market persisted as the market continued to grapple oversupply, sources said Monday.
While existing storage incentives provided a floor to the market, preventing it from weakening further, fundamentals remained bearish and this continued to dent jet premiums.
The premium in particular has weakened recently, with FOB NWE cargoes pegged at $56/mt Monday. CIF cargoes were around $66.50/mt. The cargo market remained well-supplied as heavy September arbitrage arrivals were yet to be absorbed. Some cargoes have yet to find homes.
Seasonal cooling off in the underlying demand was marginal so far, with airlines reporting reasonably healthy volumes for September. While demand in the NWE region was so far in line with seasonal expectations, buying interest in the Mediterranean was reported as low.
Length in the Mediterranean was more pronounced, sources said. US East Coast demand, which had soaked up some barrels previously, has cooled over the past week as premiums for prompt CIF delivered cargoes basis New York Harbor fell from a record $152.30/mt September 2 to $72.68/mt Friday.
This has left many of the Persian Gulf barrels fixed to Europe with no alternative destination, helping pressure ARA spot prices lower.
Meanwhile the Rotterdam barge market saw some support from prompt short-covering. Availability in the ARA area remained adequate, but sellers were looking for better premiums as storage remained a viable option.
"There is both directional buying and selling but far apart currently," a trader said.
In other news, Mina Group, the integrated energy services and infrastructure company announced the award of further multiple US Department of Defense contracts to supply fuel to locations in Eastern Europe, the company said Monday.
Mina Group's subsidiary, Red Star Enterprises, has won competitive tenders to supply jet fuel to the DoD's Defense Logistics Agency in various locations in Poland, Lithuania and Estonia.
These awards follow Red Star Enterprises' DoD Defense Logistics Agency contract for Latvia signed in June this year, the company said.