Europe to see some returning jet supply from the Middle East in May

Europe is expected to see some jet supply loading out of Oman discharge into the region amid an opening arbitrage between the regions, according to sources close to the matter.

The Sea Penguin, an LR2 tanker is set to load at Duqm April 25 for discharge into UKC, Platts fixtures reports showed, with a lumpsum rate of $6.75 million. It previously loaded 102,000 mt of jet fuel from Korea for discharge in Malaysia on April 9.

The fixture comes as an early sign of improving arbitrage incentives. Platts assessed the jet kero FOB Arab Gulf flat price at $171/b April 23, around $1,365.90/mt. Meanwhile, the jet CIF NWE cargos were priced at $1517.50/mt April 23, a $151.6/mt premium.

The freight cost for a 90kt LR2 from the Arab Gulf to UKC was assessed at $91.39/mt.

"The arb seems open," one source close to the European jet market said. "There have been no barrels to transit but [we are] now starting to see more discussion."

A European jet trader commented that the cargo would likely be very expensive. "It's not going to be tradable. Its buying for its own system."

While some volumes may come from Oman, European swaps continue to show expectations of a weaker market in April compared to May. The jet CIF NWE swap differential prompt spread was assessed at a contango of $2/mt April 23 from a backwardation of $10.25/mt April 22. Weakening swaps could put pressure on incentives, effectively closing the route.

"Swaps are under pressure," the first source said. "Maybe [the situation will] change quickly."

Europe has continued to receive volumes loaded in the Middle East since the beginning of the US-Iran war. Persian Gulf volumes in March reached 1 million mt in March and 200,000 mt in April brought on tankers loaded before the war, S&P Global Commodities at Sea data showed. Volumes from the Red Sea ramped up from 41,000 mt in March to 125,000 mt in April predominantly loaded at the Saudi port of Yanbu.

"Yanbu is a small but reliable amount. In the old days wouldn't care but 100kt a month is important now so there is more focus on Yanbu," a second European jet trader said.

Yanbu volumes continue to head for Europe, despite a strong pull from Asia given the risks associated with traversing the Bab-el Mandeb Strait and lower freight costs to the Mediterranean.