March 4, 2015
The US Gulf Coast jet fuel market strengthened 2.25 cents/gal Wednesday as output and stocks in the region were seen lower in the week ended February 27, according to data from the Energy Information Administration.
Platts assessed the Gulf Coast jet fuel differential at NYMEX April ULSD minus 12.75 cents/gal, a three-week high.
Sources said part of this gain came after EIA data showed output and inventory in the region down. USGC jet fuel inventory fell 224,000 barrels to 12.65 million barrels while refinery production decreased 49,000 b/d to 730,000 b/d, according to EIA data.
Sources also attributed the USGC strength to the decrease in the backwardation in the underlying futures market seen throughout the day. Platts saw NYMEX ULSD April/May futures markets backwardated 1.87 cents/gal Wednesday, while Tuesday it was 3.11 cents/gal.
"That just scared off the seller," one source said.
On the Atlantic Coast, New York Harbor jet fuel dipped after being a premium to the NYMEX ULSD market earlier in the week.
Platts assessed New York harbor barges down 3 cents Wednesday to NYMEX April ULSD minus 0.50 cents/gal or $1.8914/gal on the outright.
Both USAC jet stocks and production, however, fell the last week according to EIA. Stocks declined 679,000 barrels to 9.32 million barrels
while output fell 10,000 b/d to 55,000 b/d, the lowest in over a year.
Market participants had expressed concern over jet fuel production, anticipating it would drop in favor of ultra low sulfur diesel due to
increased demand, cold weather, and ULSD's large premium to jet fuel. But EIA data showed ULSD output in the Gulf fell 127,000 b/d to 2.3 million b/d last week.
Atlantic Coast ULSD production climbed 34,000 b/d to 195,000 b/d after hitting a three-year low the previous week.
The strength in the Gulf Coast and weakness in New York Harbor caused the up-down, the spread between the two regions, to narrow to 12.25 cents/gal. Cost to ship jet fuel up the Colonial Pipeline from the Gulf Coast to New York Harbor costs roughly 4.50 cents/gal.
ICE structure discourages NWE buyers
Flat prices and differentials fell in the European jet market Wednesday, as an increase in the backwardation on prompt ICE low sulfur gasoil contracts was heard to discourage buying interest.
A larger than expected 10.3 million barrels build in US commercial crude stocks also dragged flat prices lower, as the oil complex moved down on the news.
On paper, 176,000 mt of jet swaps were seen traded on the ICE block up to 1600 GMT, with 92,000 mt concentrated in the April CIF NWE cargo swap. The balance of the month swap fell $2/mt in what was said to be a reaction to the widening backwardation on ICE low sulfur gasoil.
The contango between the March and April CIF NWE jet cargo swaps correspondingly widened $1.75/mt.
Elevated storage levels in Northwest Europe have reduced available ullage, a trader said, potentially reducing incremental buying interest.
"Storage is currently around 550,000 barrels in ARA. That is in the high range. The 1-1/2 year average is probably around 400,000 barrels," he said.
Additionally, barrels may be committed to tank through the first quarter through the sale of CSO tickets, he said.
Meanwhile, on the strength of two Vitol bids, the discount for jet barges to cargoes neared parity, having been assessed at $6.25/mt for 19 consecutive sessions prior to Monday.
Supply from European refineries was also heard to remain high, though a recent decline in product cracks could cause refiners to consider initiating maintenance soon, market sources said.
Previously, some had said maintenance might be delayed as refiners looked to take advantage of healthy margins.
"Cracks have now been on a downward trajectory for five days...If it remains like this for one more week, [European] refineries will start considering moving to maintenance," he said.
In addition to regional output and the habitual flow from the Red Sea and Persian Gulf, jet could start moving over from the Far East, one source said.
"Asia has come in the picture very recently as the arb is clearly open on paper and some movement is being seen. Good cracks are providing [Asian refineries] incentive to produce more, hence supplying more than required and moving the surplus to Europe as long as the arb is open," he said.
Another market participant said he had not seen any flows from Asia into Europe.
"We have been looking for cargoes from the Far East, but I do not know of any fixtures. The AG is pumping out plenty, but nothing all the way from Singapore or Korea," he said.
Meanwhile, global air passenger traffic in January rose 4.6% year on year, the International Air Transport Association said.
In Asia Tuesday, the cash regrade plummeted to a two-month low of minus 16 cents/barrel Tuesday, after peaking to a near two-month high of plus $3.52/b on February 2. The drop in regrade, however, was seen as a price correction, the trader added.