February 27, 2015
The volume of physical jet fuel traded during the Platts Market on Close assessment process in Singapore more than doubled month on month to 3.61 million barrels in February, on the back of strong arbitrage demand.
In comparison, January saw 1.43 million barrels of jet fuel traded during the Platts MOC assessment process, Platts data showed Friday.
The FOB Singapore jet/kerosene cash differential has also risen in February, to a near three-month high of plus 55 cents/barrel to the Mean of Platts Singapore jet/kerosene assessments Thursday, although it has since eased back down to be assessed at 48 cents/b on Friday.
The cash differential was last higher at 58 cents/b to MOPS jet/kerosene assessments on November 27, Platts data showed.
Unipec, the wholly-owned subsidiary of China Petroleum & Chemical Corporation or Sinopec, was the largest buyer during the Platts MOC assessment process in February, picking up 2.41 million barrels of jet fuel.
European trader Vitol was the largest seller in February, selling 2 million barrels during the Platts MOC assessment process.
The huge increase in traded volume during the Platts MOC process was attributed to widen open arbitrage to the West.
"The arbitrage is opened, but [movements] are also subject to economics," a trader based in Middle East said.
To date, 1.51 million mt (11.9 million barrels) of jet fuel were shipped to West of Suez and the US from Middle East and Asia in February, Platts shipping data showed.
Of this, about 1.12 million mt had moved from the Persian Gulf to Northwest Europe and the Mediterranean, while some 200,000 mt was seen headed to the US West Coast and US Gulf Coast from South Korea.
Another 238,000 mt of jet fuel was fixed for early March loading from the Middle East and Northeast Asia to Northwest Europe and the US.
The flurry of arbitrage fixtures follows a sharp decline in the prompt month Exchange of Futures for Swaps -- the spread between Singapore 500 ppm sulfur gasoil swaps and ICE 10 ppm sulfur gasoil futures -- has seen a sharp decline this month, with the March EFS falling from minus $17.68/mt at the start of February to its lowest in more than two years of minus $36.15/mt on February 24.
The March EFS was at minus $29.19/mt at 0830 GMT Friday, close of Asian trade.
The weaker the EFS, which measures the East/West spread, the easier it is to send cargoes from Asia and the Middle East to Europe.
Adding to this, prolonged refinery issues in the US also saw more jet fuel cargoes moving from South Korea to the US West Coast.
Tesoro's 166,000 b/d Golden Eagle plant in Martinez, California has been shut since February 1 because of ongoing strike action by United Steelworkers. An explosion at ExxonMobil's 149,500 b/d Torrance refinery in California on February 18 also exacerbated the squeeze on supply.
Data from the Energy Information Administration released late Wednesday showed that US distillate stocks fell 2.7 million barrels in the week ended February 20. At 124.7 million barrels, distillate stocks were 9.8% below the EIA five-year average for the same reporting period.
China suppliers to hike ex-refinery prices
China's three major jet fuel suppliers are expected to lift their ex-refinery prices by around $51/mt in March from February, after eight consecutive months of decline, according to Platts calculations based on the government's pricing formula.
The refinery gate reference jet price charged by China National Offshore Oil Corp., PetroChina and Sinopec for fuel sold to China National Aviation Fuel are expected to be set at a maximum of Yuan 4,128.79/mt ($671.62/mt) for March, up Yuan 316.44/mt from February.
State-owned CNAF, which integrates the purchase, transportation and sales of aviation fuel in China, would pay a premium of Yuan 30/mt on top of the ex-refinery price, a figure it negotiates annually with the three suppliers.
Platts calculated the ex-refinery rate based on the price of imported jet fuel, which after including tax, averaged Yuan 4,158.79/mt over January 26 - February 24, the period the National Development and Reform Commission would take into account for determining the March price.
Under a pricing mechanism established in July 2011, the NDRC sets a monthly maximum ex-refinery jet fuel price on the first day of each month using an average of Platts' FOB Singapore jet fuel assessments, freight from Singapore to China, insurance at $2/barrel, 17% VAT, and port dues totaling Yuan 50/mt. That caps what the suppliers can charge CNAF at the refinery gate.
The prices are tracked from the 25th day two months prior to the 24th day of the previous month, adjusted for weekends and public holidays.
The Mean of Platts Singapore jet/kerosene assessments averaged $70.48/b, or $556.82/mt, over January 26- February 24, gained $5.48/b from the previous review period.
Meanwhile, the Asian jet fuel/kerosene market continued to see firm buying interest from the West, despite waning winter demand locally.
That said, FOB Singapore cargo differentials fell 7 cents to Mean of Platts Singapore strip plus 48 cents/b Friday. The differential has been trading in positive territory throughout February.
To date in February, at least 1.115 million mt of jet fuel was shipped from the Middle East to Northwest Europe and the Mediterranean, based on a tally of Platts shipping fixtures.
CIF NWE premiums lowest since 2011
The CIF Northwest European jet market lost more value Friday, hitting its lowest in 40 months amid plentiful supplies and continued diesel market tightness.
The premium to March low sulfur gasoil futures was assessed at $17.75/mt, down $2/mt to its lowest since October 2011, when the contract started trading.
In the Platts Market On Close assessment process for cargoes, there were two offers from Vitol and no bids. Both offers were left outstanding at the close.
The outright CIF Northwest Europe jet cargo price was $611/mt, up $6.25/mt on the day in line with higher crude and gasoil futures.
Traders continued to see a well supplied physical jet market with the arbitrage from the east open, despite this week's steep fall in European jet premiums.
"Arbs here look OK. It is an import market after all," a trader said in the afternoon.
That was in sharp contrast to the current strength in the European diesel market, driven by the lack of winter products in ARA and stronger demand in the US.
No intra-day indications for cargoes or barges were heard and in the Platts MOC there were no bids or offers for barges. One trader said the lack of activity in the jet barge market was the result of continued good stock levels in Amsterdam-Rotterdam-Antwerp.
By contrast, hedging activity in the swaps market was high, as 134,000 mt was cleared through the ICE Block by 4 pm London time, equivalent to just under half the total cleared volume for middle distillate swaps.
In other news, distillate stocks in the ARA hub dropped 240,000 barrels in the week to February 26 to 23.23 million barrels, while combined jet and kerosene stocks were down 90,000 barrels to 4.28 million barrels, according to data from BNP Paribas.