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Platts Jet Fuel

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Rotterdam jet fuel barge premium breaks above $50/mt on tight availability

London (Platts)--3Nov2017/1001 am EDT/1401 GMT


Rotterdam jet fuel barge premiums to front-month ICE gasoil futures edged above $50/mt Thursday, to hit a 34-month high of $50.75/mt.

This follows over two weeks of rising prices because of a lack of availability of jet fuel in the Amsterdam-Rotterdam-Antwerp trading hub.

In mid-October premiums were hovering around $20/mt and have since more than doubled as a lack of stocks took the market by surprise.

Backwardation in distillates markets has driven much of the fundamentals in the jet fuel market, firstly emptying stocks in the region as storage became unprofitable and more recently encouraging the buying of barges rather than cargoes to meet demand.

This preference for barges has seen the spread between barges and cargoes, which is usually negative, reach $9.50/mt, the highest in over five years.

This spread may not be sustained at this level if traders buy cargoes to break down into barges, narrowing the spread as cargo demand increases and barge supply grows, although one source pointed to the backwardation as a risk to this strategy as storage is needed to take the cargo.

The lack of availability has been all the more unexpected as the market moved out of peak summer demand season over a month ago and arrivals into Northwest Europe have been high for the previous two months.

"Structure is driving the stocks down but where is the jet going? Airline demand doesn't explain it," a trader said, adding that the price move may be overdone.

"It's hard to find where that 25% increase in the last week is coming from, it's a lot, the market is accelerating beyond itself," he said.

Global air passenger traffic growth in September slowed to 5.7% year on year, data from the International Air Transport Association showed Thursday, the lowest growth since February.

Meanwhile, the refinery turnaround season in Northwest Europe has reduced regional supply of jet fuel, which could explain some of the tightness, however, sources did not expect the market to go so high during the maintenance.

There is also a reduction in jet fuel output from refineries still running as the need to produce winter-specification diesel comes into play.

Winter specification diesel is required from October and has cold properties closer to jet fuel, lowering the maximum yield of jet fuel despite refiners maximizing jet fuel production due to high jet fuel cracks.

--Christopher Ewen, christopher.ewen@spglobal.com
--Edited by Jonathan Dart, jonathan.dart@spglobal.com

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