Singapore physical regrade slumps to record low as jet buckles under coronavirus impact

Singapore — The FOB Singapore physical regrade -- the price jet fuel commands over 10 ppm sulfur gasoil -- plunged to a fresh record low at the Asian close Wednesday, underscoring the persistent weakness in the Asian jet fuel market as it reels from the demand destruction caused by the coronavirus pandemic while the region's gasoil market maintains a steady footing.

At the 0830 GMT Asian close Wednesday, the FOB Singapore physical regrade stood at a record low minus $7.10/b, S&P Global Platts data showed.

It was the lowest level seen in the physical regrade since the sulfur content in Platts' benchmark gasoil grade was changed to 10 ppm from 500 ppm on January 1, 2018, and far surpassed the previous low of minus $3.64/b on October 2, 2018

On the derivatives front, the front-month Asian regrade swap stood at minus $6.51/b at Wednesday's Asian market close, the lowest since Platts switched to 10 ppm sulfur gasoil as its benchmark grade at the start of 2018.

The Asian jet fuel market has borne the brunt of the impact of the coronavirus pandemic as a result of travel restrictions and city lockdowns, and airlines globally sharply reducing capacity. Market participants said there were currently no strong demand-side factors, and that further bearishness was inevitable on the back of further flight groundings and city/country lockdowns.

Local flagship carrier Singapore Airlines Tuesday announced plans to further reduce flight capacity by 50% and said it must be "prepared for prolonged periods of difficulty". The announcement came after the airline slashed more than 700 international flights in February.

The FOB Singapore jet fuel/kerosene outright flat price fell to $31.62/b at the Asian close Wednesday, the lowest level since September 29, 2003 when it was assessed $31.55/b, Platts data showed. Year to date, the outright price has slumped 60.61% from $80.28/b at the start of the year.

Market sources said Asian refiners would look to maximize gasoil production and minimize jet output due to the deeply negative regrade, which would help to clear up some jet length.

"Jet [fuel market] is in very bad shape ... With more and more countries on lockdown and more flights are being grounded, airlines will run out of cash, and no one is sure how long this will last," a refining source said.

GASOIL MAINTAINS STABLE FOOTING

Co-distillate gasoil in contrast was holding stable due to the upcoming peak turnaround season, industry sources said.

Asian gasoil traders noted that while Asian gasoil demand has weakened, the supply outlook was also tighter due to lower export volumes from North Asia.

"I think China's gasoil exports will be reduced for April volumes onwards," a trader with a Chinese company said Tuesday. "In China there is a floor price for retail gasoil and gasoline, so the Chinese would prefer to sell in the domestic market," the trader added.

Other sources were also more optimistic about the outlook for gasoil, saying that its varied uses would count as a stabilizing factor. S&P Global Platts Analytics in a note last week also said gasoil would be better able to weather the current crisis than other refined oil products.

The FOB Singapore 10 ppm sulfur gasoil marker was assessed down $2.42/b day on day at $38.72/b at the Asian close Wednesday; the Asian benchmark for the ultra low sulfur diesel grade was last assessed lower more than four years ago at $38.70/b on February 12, 2016.