Asia middle distillates - Key market indicators this week

Singapore — The Asian middle distillates market is expected to garner support this week, with sentiment buoyed by reports of airlines planning to add more flights as countries tiptoe out of COVID-19 related lockdowns and border restrictions.

Regional demand for gasoil is also expected to be steady to slightly higher, supported by a jump-start in imports as countries replenish stocks after months of weak demand due to government controls on population movement and other social distancing measures.

July ICE Brent crude futures rose $1.88/b from last Friday's close to $35.94/b at 0300 GMT Tuesday. Singapore was closed Monday for a public holiday.

JET FUEL/KEROSENE

** The front month June/July Singapore jet fuel timespread opened the week on a firmer note at minus $1.30/b Tuesday morning, up 5 cents/b from Friday's 0830 Asian close of minus $1.35/b, as demand for jet fuel is expected to rise with both domestic and international flights taking off in Asia.

** The slight pick-up in jet fuel demand came as South Korea announced plans to resume international flight operations as countries begin to relax border restrictions, lifting entry bans from as early as June. Supporting this, the FOB Korea jet fuel cash differential finished at minus $2.80/b to the Mean of Platts Singapore jet fuel/kerosene assessment at the Asian close Friday, up $1.60/b since the beginning of the month, S&P Global Platts data showed.

** In India, domestic flights took to the skies on Monday after being put on a two-month lockdown that started March 25, albeit at one-third capacity from the pre-lockdown period.

** China's jet fuel exports crossed the 2 million mt level, to hit 2.03 million mt, rising 37% from March to a new record, preliminary data from the General Administration of Customs showed Monday. In addition, demand for jet fuel from the domestic aviation sector has started to rebound, which would encourage more barrels to be saved in the domestic market.

** Positive sentiment was also evident in the derivatives market, with the Q3/Q4 quarterly jet fuel/kerosene spread -- an indication of near-term sentiment -- narrowing to minus $2.20/b at the Asian close Friday, up 10 cents/b day on day and 67 cents/b week on week.

GASOIL

** The Singapore June/July gasoil timespread opened Tuesday at minus 25 cents/b, up from Friday's close of minus 31 cents/b.

** The front month June Exchange of Futures for Swaps spread was pegged at plus $9.61/mt at 0300 GMT, up from plus $9.12/mt at Friday's Asian close.

** Looking ahead, the Asian gasoil market is likely to remain supported. Traders said that while a lot of the improvement in sentiment stems from supply-side factors, some regional demand, such as that from Vietnam, has also boosted the market, especially for the medium sulfur gasoil grade.

** Still, overall gasoil demand remained far below normal levels with market sources saying that demand recovery would take time. This was reflected by a weakening of Asian gasoil cracks versus crude -- at the Asian close Friday, the physical gasoil crack to front-month cash Dubai stood at $5.81/b, down 81 cents/b from Thursday.