July 24, 2014
US Atlantic Coast jet fuel differentials fell Thursday as traders weighed increased production, stocks and imports against an open arbitrage from the Gulf Coast.
Platts assessed the USAC jet fuel barge and Colonial Pipeline differentials at NYMEX August ULSD futures plus 2.75 cents/gal and Buckeye Pipeline barrels at plus 3 cents/gal, with all three New York differentials down 2.50 cents.
Gulf Coast jet was relatively unchanged on its first day against a new monthly futures contract, at September minus 5 cents/gal.
The arbitrage between the two regions remains open at 6.96 cents, above Colonial's 4.51-cent cost of shipping from Houston to New York Harbor. The New York premium had risen on worries of tight supply to 10.50 cents on Tuesday, its highest level since April 1.
"It's settled down a bit," a jet trader said.
The differentials faltered Wednesday as Energy Information Administration data showed stocks in the week ended July 18 were 703,000 barrels higher than those in the week before.
Production rose 5,000 b/d on the week to 96,000 b/d but was 37% higher than a year earlier. Imports also gained 55,000 b/d to 82,000 b/d, equal to about two typical cargoes.
The Overseas Ambermar, capable of carrying 270,000 barrels, was nearing Port Everglades, Florida, carrying jet fuel, according to a shipping source and Platts cFlow vessel-tracking software.
A second jet trader said the recent strength in New York may have attracted some more barrels from Canada or India that were headed elsewhere.
"Vessels may have redirected with it being so tight," he said. "Seasonally, it would fit well from Canada."
Platts cFlow shows at least four vessels from Canada into the East Coast, although gasoline remains the dominant, and most likely, import cargo into the region.
European premiums flying high
The jet fuel premium to benchmark gasoil futures for a physical cargo delivered in Northwest Europe recorded further gains Thursday, rising to a 16-month high of $81.50/mt.
The increase was driven by persistent buying interest to meet peak summer aviation demand, market sources said.
The premium was up $1.25/mt on the day, taking it to the highest level since March 12, 2013. The uptick partly offset a dip in underlying gasoil, leaving outright cargoes at $967.25/mt, down $0.50/mt.
Seasonal consumer demand has provided active spot buying interest for cargoes and, although incoming barrels from the Persian Gulf proved ample to satisfy some short positions, there remain pockets of outstanding prompt demand, sources said.
The prompt tightness was also reflected in higher swaps levels and a market structure in steep backwardation. Typically, a backwardated market would precipitate a rush of sellers to offload molecules at the higher prompt price.
But with suppliers weighing up options to discharge imported cargoes in the Mediterranean, before carrying on to Northwest Europe, and output from domestic refiners spending little time in tank en route to meet seasonally higher aviation demand, visible offers on the day were sparse.
Suppliers in the Med were focused on covering shorts through H2 August. "July is done and dusted," said one jet fuel trader. "Everyone's now looking at the second-to-third decade of August."
There was outstanding interest in the East Med, along with pockets of demand in the West Med, he said. The August CIF NWE jet cargo swap premium to gasoil reached fresh highs, having strengthened since the beginning of the month.
The premium for August was assessed at $73.75/mt, up $1/mt on the day and taking the monthly gains to date to $12.75/mt. The month-one swap was last higher January 7, when it stood at $75.50/mt.
In terms of structural dynamics, the August-September swaps spread was assessed in a $7/mt backwardation, which, with the corresponding gasoil contracts holding in a $3.25/mt contango, left the overall jet structure backwardated by $3.75/mt.
Asian supply weighing
Ballooning spot volumes of jet fuel/kerosene in Asia, underpinned by tepid buying appetite continued to exert downward pressure on the regional jet fuel/kerosene market Thursday.
Stockpiles of the middle distillate in several countries, including China and Japan, have been on the rise. According to data from China Petroleum Stockpile Statistics compiled by China's state-owned news agency Xinhua, commercial jet fuel inventories in the country at the end of June rose 4.3% month on month.
The absolute volumes of stocks was not provided.
Similarly, jet fuel and kerosene stocks in Japan rose 6.5% and 5.3% respectively, to 6.09 million barrels and 9.97 million barrels, data from the Petroleum Association of Japan showed Thursday.
Sources noted that prevailing weak underlying demand and limited arbitrage opportunities to the West have trapped barrels within the region. Many market participants remained pessimistic on the market outlook, pointing to expected lower heating demand in Japan.
The country's Institute of Energy Economics said Thursday that domestic sales of kerosene are forecast to drop 2.9% year on year to 16.8 million kl in fiscal 2015-16 (April-March) as part of the country's ongoing trend of switching to electricity and natural gas for heating.
In other news, Bangladesh's only oil refinery -- operated by Eastern Refinery Ltd. -- is now running at its full capacity of 1.5 million mt/year (30,000 b/d), after two of its electricity generators were repaired, a senior ERL official told Platts Wednesday.
Production of almost all refined petroleum products, including A-1 jet fuel and superior kerosene, had been curtailed since mid-April as the generators broke down.
But the lower processing at ERL did not pose significant problems to domestic supply, and Bangladesh did not need to import extra volumes of refined products, said the ERL official.