Plunge in Asian jet fuel prices unlikely to spur demand, but some upside seen for gasoil: traders

While both Singapore gasoil and jet fuel prices tumbled to four-year lows Monday amid free-falling crude oil values, this was expected to have little impact on demand for jet fuel and spur some optimism for co-distillate gasoil, market sources said Tuesday.

Traders said that while the coronavirus outbreak has been weighing heavily on the Asian gasoil market for several weeks, cutting demand and building inventories, the sharp fall in flat prices on Monday may work to reverse the trend.

"The lower flat prices could stimulate an increase in demand in new locations, especially in flat price-sensitive areas... the drop in flat price is just madness," a Singapore-based middle distillate trader said.

The FOB Singapore 10 ppm sulfur gasoil price fell $11.60/b Monday from last Friday to a near four-year low at $46.12/b at the Asian close Monday. The benchmark was last lower on April 6, 2016, at $43.55/b, S&P Global Platts data showed.

However, traders said gains in other gasoil indicators showed there was still some holding power for the middle distillate.

"The EFS [Exchange of Futures for Swaps] is up quite a bit, and the [gasoil] crack [spread to crude] too -- I think that shows there is some optimism for gasoil," a trader with an Asian company said.

At the Asian close Monday, the FOB Singapore gasoil physical crack spread to front-month cash Dubai was up $4.11/b from last Friday at $13.27/b, while the front-month EFS stood at minus $4.81/mt -- narrowing $3.45/mt from the previous session.

At 0300 GMT Tuesday, industry sources pegged the front-month EFS at minus $9.14/mt.

Platts reported Friday that Unipec, the trading arm of China's Sinopec, had chartered the 299,000 dwt Elandra Kilimanjaro to move 280,000 mt or 2.05 million barrels of gasoil from the Singapore Strait to Rotterdam.

Market observers Tuesday said that should more similar moves be made, the supply glut in Asia would be eased. "Asia would feel less pressured with oil moving out," a trader said.

In addition, traders were also heard to be eyeing storage opportunities with the gasoil market currently in contango.

"I would imagine... that at these levels, some are looking at storage -- it pays for financing at these levels," another Singapore-based trader said.

The contango in the gasoil market deepened further at the Asian close Monday, with the balance March/April swap falling 13 cents/b from last Friday to minus 13 cents/b. At 0300 GMT Tuesday, brokers pegged the spread at minus 12 cents/b.

NO SILVER LINING FOR JET FUEL

Industry sources Tuesday reiterated that the main issue in the jet fuel/kerosene market remains demand destruction, as the coronavirus outbreak continues to reduce air travel and cargo demand, and tighten border controls.

Latest World Health Organization Monday data showed the number of confirmed cases globally had risen to 109,577. Outside of China, where infections have spiraled to 80,904, confirmed cases in South Korea, Italy and Iran have spiked to 7,382, 7,375 and 6,566, respectively, WHO data showed.

"[Demand] for jet, probably not ... but yes for others [gasoil and gasoline]," a refiner in North Asia said. "But there could be some [jet fuel] demand for blending into the gasoil pool," he added.

However another industry source said blending requirements were limited and unlikely provide much support.

Spot jet fuel cargoes on an FOB Singapore basis tumbled $11.57/b or 21% from last Friday to $43.49/b Monday. It was last lower February 29, 2016 at $42.74/b, Platts data showed.

Reflecting the bearishness, the contango structure in the front month April-May jet fuel timespread widened 12 cents/b from Friday to minus 59 cents/b Monday. At 11 am Singapore time (0300 GMT) Tuesday, brokers pegged the spread at minus 30 cents/b.

Front-month May ICE Brent crude futures fell $13.24/b from the previous session to $35.94/b at 4:30 pm Singapore time (0830 GMT) Monday, a four-year low, after Saudi Arabia slashed official selling prices, extending a selloff that began in late January.