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Platts Jet Fuel

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Singapore jet fuel swap cracks hit three-year high on cold snap

Singapore (Platts)--8Feb2018/427 am EST/927 GMT


Asian jet fuel margins rose to a three-year high as ongoing cold weather in Japan and South Korea leads to increased demand for kerosene as a heating oil.

On February 2, Asia jet fuel margins against Dubai crude stood at $16.44/b, the highest since February 2015 when jet fuel margins hit 17.40/b. As of February 7, the margin remained at $16.00/b.

This strength was also reflected in the physical markets, where the FOB Singapore jet fuel spot cargo cash differential rose by 17 cents/b day on day to plus $1.02/b. The last time it was any higher was on January 11, 2012, when it was assessed at plus $1.21/b.

An especially cold winter in Japan -- the region's largest consumer of kerosene -- led the country's transport ministry to issue an emergency announcement advising people to remain indoors.

Meanwhile, Tokyo experienced its heaviest snowfall in four years, prompting the Japan Meteorological Agency to issue a warning.

The country continues to cope with the stinging winter this year by drawing on its kerosene stocks, with the latest data from the Petroleum Association of Japan indicating a 15.4% week-on-week draw to 9.01 million barrels in the week ended February 3.

Stocks were 12.3% lower from last year's levels, according to S&P Global Platts calculations.

South Korea also struggled with frigid weather this winter, leading the Korea Power Exchange to instruct local companies to manage their power use in order to ration the country's electricity reserves.

"The fundamental reason [for the high jet fuel cracks] lies in the cold weather in Japan and South Korea, spiking demand for heating oil," Sukrit Vijayakar, director of Trifecta Energy, said.

"Once market fundamentals are supportive of prices, speculators will start jumping in," Vijayakar added.

"I think it would be the end of March before we see margins go back to normal. In my opinion, any price above $1 for regrade would be a good time for refineries to hedge," Vijayakar added.

--Jing Zhi Ng, jz.ng@spglobal.com
--Zameer Yusof, zameer.yusof@spglobal.com
--Edited by Pankti Mehta, pankti.mehta@spglobal.com

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