First cargo heard booked on open jet arbitrage

New York — The US Gulf Coast jet fuel arbitrage to Europe was heard to have opened Wednesday, after weeks of speculation coupled with a weakening jet fuel market and falling freight rates.

"Several" ships were heard to have been fixed from the USGC to Europe, one European market source said.

The prospect of increased activity on the Medium Range USGC-trans-Atlantic route has not dampened the downward momentum for clean tanker freight. Despite an open jet arbitrage from the USGC to Europe, last-traded levels on the 38,000 mt USGC-trans-Atlantic run fell to w120 Tuesday, a w31% drop week on week, after Valero placed the Kanala on subjects late Monday evening to lift a cargo of jet fuel February 6-7 and discharge in Europe.

Though shipping market participants had not yet heard fresh cargoes of jet fuel hitting the market Wednesday morning, a number of re-let ships, tankers operated by traders and refiners, were reported on subjects by position lists with no further details. The ships in question, relets operated by Koch and Cargill, could move petroleum products internally for the charterer; no details have been confirmed on the relets' subject terms, however.

Weak jet fuel market adds to export intrigue

This new, burgeoning avenue for jet fuel to leave the Gulf Coast comes just after regional jet fuel prices reached over a two-year low Monday, with S&P Global Platts assessing the market at the NYMEX March ULSD futures contract minus 14.50 cents/gal. The market was last seen at this level on Janaury 16, 2018.

Gulf Coast jet fuel has since made a slight recovery, with Platts assessing the market at March futures minus 13.50 cents/gal Tuesday. Furthermore, the market was heard to have traded at March futures minus 12.50 cetns/gal and March futures minus 12.25 cents/gal Wednesday morning.

The Gulf Coast jet waterborne market was also impacted by arbitrage, with Jet A jumping to a near seven-month high Tuesday at a premium of 2.40 cents/gal over prompt Gulf Coast pipeline jet fuel. This marks a 50-point day on day jump, and the market was last seen this high on July 11, 2019. Jet A-1 also jumped 50 points to 2.90 cents/gal over prompt Gulf Coast pipeline jet fuel.

Jet A is used in the US and Mexico, while Jet A-1 is used in nearly every other country. The key difference between the two is a lower freezing point for Jet A-1.

European jet spec changes boost arbitrage opening

Likewise, an amendment to Europe's jet A1 specifications has also helped spur the opening of the arbitrage.

Recently, European jet fuel specifications required the presence of antioxidants in the blend which US refiners were not able to produce. Now, the requirement is optional, thereby opening the European market for Gulf Coast jet producers.

Northwest Europe is net short jet fuel and normally imports from both the Persian Gulf and India. However, the US is a shorter voyage and has a very weak jet fuel market at the moment, which has allowed it to become a viable and economical option.

Sending jet fuel from the USGC to Northwest Europe netted shippers 95 cents/b as of Tuesday, 42 cents higher than previously seen on January 31, S&P Global Platts Analytics data showed.