Asia middle distillates: Key market indicators this week

Singapore — The Asian jet fuel and gasoil markets moved in divergent directions for the week beginning Jan. 11. While the jet fuel market was seen mixed on a combination of bearish aviation fundamentals but encouraging kerosene demand from North Asia, the gasoil market was seen rising on the back of firmer demand relative to the West.

ICE March Brent crude futures were up 87 cents/b at $55.63/b at 0300 GMT Jan. 11 from the 0430 GMT Asian close on Jan. 8.

JET FUEL/KEROSENE

** The balance month January-February jet fuel/kerosene timespread was weaker at minus 28 cents/b at 0300 GMT, widening 9 cent/sb from the Asian close on Jan. 8.

** The FOB Singapore jet fuel/kerosene cash differential was seen steady in the week ended Jan. 8 as bearish news on the air travel front was offset by heightened kerosene demand from North Asia. As a result, the FOB Singapore jet fuel/kerosene cash differential was assessed at minus 21 cents/b to the Mean of Platts Singapore jet fuel/kerosene assessments on Jan. 8, unchanged from the beginning of the week, S&P Global Platts data showed.

** That said, the recent fire at Japan's second-largest refinery, Idemitsu Kosan on Jan. 7 could further tilt the supply and demand balance as Japan is witnessing a steeper decline in middle distillate inventory, industry sources said.

** Looking ahead, industry sources said that the new variant of the COVID-19 virus could bog down the aviation sector further in 2021. In an earlier report on Jan. 6, S&P Global Platts Analytics said that Chinese air traffic has been weakening on rising viral cases and travel curtailment. Europe and the UK air traffic had also shown a notable decline given the rise in COVID-19 cases, reduced travel, and increased restrictions

** The Q1/Q2 quarterly jet fuel/kerosene swap spread – an indication of near-term sentiment – averaged minus 71 cents/b for the week ended Jan. 8, largely stable from the prior week's average of minus 72 cents/b.

GASOIL

** The balance month January-February gasoil market structure was pegged at minus 10 cents/b at 0300 GMT, narrowing in by 5 cents/b from the Asian close on Jan. 8, Platts data showed.

** The prompt month January Exchange of Futures for Swaps spread was pegged at plus $2.26/mt at 0300 GMT Jan. 11, nudging down from an assessed plus $2.94/mt at the Jan. 8 close.

** With the January EFS spread surging up into positive territory on Jan. 8, market participants said this would likely amplify supply balances in Asia due to additional gasoil barrels, from the Middle East and India in particular, being attracted toward Singapore. The surplus volumes have come on the back of weak gasoil demand in Europe due to lockdowns and tightening restrictions aimed at combating the spread of the pandemic, as well as a more infectious mutant strain of the virus.

** In the weeks ahead, sources said the Asian gasoil market may tilt more towards an oversupply situation, especially for January, with the pace of demand recovery in Asia still seen as lagging behind that of regional supply balances which will receive a boost from the incremental volumes flowing to the east. Traders said China's export volumes for January are expected to be higher, with estimates heard at around 1.7 million mt, up from around 1.3-1.4 million mt for December.

** The Q1/Q2 quarterly gasoil swap spread – an indication of near-term sentiment -- averaged minus 35 cents/b for the week ended Jan. 8, largely stable from the prior week's average of minus 33 cents/b.