Asia middle distillates - Key indicators this week

Singapore — The Asian middle distillates markets started the week on a steady to slightly firmer note, tracking improving fundamentals in gasoil and jet fuel markets. Industry sources said the reopening of economies around the region as governments begin to ease containment measures will help to gradually restore gasoil demand and boost sentiment.

Albeit a slower recovery compared to its co-distillate, the aviation sector is also poised for a slight rebound as several Asian airlines resume domestic flight operations this week.

July ICE Brent crude futures fell 16 cents/b from last Friday's settle to $25.89/b at 0300 GMT Monday.

JET FUEL/KEROSENE

**Prompt balance May/June Singapore jet fuel timespread opened Monday on a stable footing at minus $3.90/b, unchanged from last Thursday's Asian close as market participants digested news of domestic airlines resuming flight operations in Asia.

**According to media reports, Thai AirAsia and Thai Lion Air will resume domestic flights between Bangkok and Chiang Mai from May 1. AirAsia has also resumed domestic flight operations in Malaysia from April 29, albeit with added safety measures in place, the airlines reported.

**Meanwhile, Vietnamese airlines are planning to increase the frequency of domestic routes within the country amid heightened travel demand. According to media reports, domestic airlines will increase the capacity of domestic destinations between Hanoi and Ho Chi Minh City from May 1-15.

**Looking ahead, market participants are of the opinion that the bearish sentiment is set to stay, despite domestic flights taking to the skies, amid extended lockdowns in Asia. This was evident in the Q3/Q4 quarterly jet fuel/kerosene spread -- an indication of near term sentiment -- which remained in negative territory and was assessed at minus 4.58/b at the Asian close last Thursday, down 63 cents/b since the beginning of April.

GASOIL

**Prompt balance May/June Singapore gasoil timespread was marginally higher Monday morning at minus $1.55/b, edging up 10 cents/b from last Thursday's close of minus $1.65/b.

**The prompt May Exchange of Futures for Swaps spread was pegged at plus $7.85/mt at 0300 GMT, up $1.92/mt from plus $5.93/mt at the Asian close last Thursday.

**Middle distillate stockpiles in Singapore -- Asia's main trading hub -- remained well above 14 million barrels for the week ended April 29 on the back of a firm front-month Exchange of Futures for Swaps spread, which has hampered the arbitrage economics of transporting Asian gasoil barrels westwards. The strong spread has also worked to attract gasoil barrels from India to flow East, further swelling inventories.

**For the week ahead, traders said the Asian gasoil market should see a measure of support, pillared by refinery run-cuts as well as the spring turnaround in North Asia, which has tightened regional gasoil supplies. A slight recovery in gasoil demand as containment measures ease should also underpin some strength for the middle distillate.