Asia middle distillates - Key market indicators this week

Singapore — The Asian middle distillate market is expected to sustain its prevailing strength for the week starting June 22, bolstered by an uptick in regional demand and against the backdrop of tighter supply, owing to ongoing scheduled turnarounds and production cutbacks.

Although the overall outlook remains firm, industry sources said fluid East-West arbitrage economics may result in market participants pausing to reassess market fundamentals on the back of incremental volumes of gasoil flowing into Asia from the Persian Gulf.

August ICE Brent crude futures edged 47 cents/b lower to $42.32/b at 0300 GMT on June 22, sliding from $42.79/b at the 0830 GMT close in Asia on June 19.

JET FUEL/KEROSENE

** The front month July/August Singapore jet fuel timespread kicked off the week on a firmer note, narrowing 19 cents/b from June 19 to minus 40 cents/b at 0300 GMT on June 22.

** The Asian jet fuel market was supported by heightened demand for jet fuel amid the gradual resumption of domestic and international flights in the region. This led to a rally in the FOB Singapore jet fuel price, which closed at a three-month high of $44.36/b on June 19. The firmer fundamentals also led the outright jet fuel/kerosene price to climb 239.66% higher from its 21-year low of $13.06/b on April 22, Platts data showed.

** Japan's top airline All Nippon Airways announced plans to boost its July jet fuel loading volumes by 40% from June due to further demand recovery expectations. In a press update on June 18, JAL said it foresees a slight recovery in future travel demand, with the Japanese government announcing plans to lift domestic travel restrictions on June 19.

** In the Persian Gulf, market participants indicated a more bullish market ahead as regional airlines look to increase domestic and international flight plans. According to S&P Global Platts data, the cash differential for jet fuel loading from the Persian Gulf has flipped to premium territory on June 18 at plus 20 cents/b to the Mean of Platts Arab Gulf jet fuel/kerosene assessment.

** A firmer outlook was also observed with the Q3/Q4 quarterly jet fuel/kerosene spread -- an indication of near-term sentiment -- which narrowed to minus $1.74/b at the Asian close on June 19, up 60 cents/b or 25.64% week on week, Platts data showed.

GASOIL

** The backwardation in the Singapore gasoil July/August structure was largely unchanged at plus 25 cents/b at 0300 GMT on June 22, inching up slightly from plus 24 cents/b on June 19.

** The front month July Exchange of Futures for Swaps spread was pegged at minus $1.90/mt at 0300 GMT June 22, widening from the minus 76 cents/mt assessed at the June 19 Asian close.

** The downward slide in the front month EFS reflects the pressure the spread has come under in recent trading sessions, with traders saying that it has been weighed down by inflows of gasoil from the Persian Gulf into Asia. The additional volumes have been attracted to Asia due to better price economics, as Persian Gulf gasoil cargoes are able to command a higher price in Asia than in the West.

** Still, traders said the Asian gasoil market remains supported, with improving regional demand coupled with constrained supplies shoring up prices of the middle distillate.

** This has been borne out by a decline in jet fuel and gasoil inventory levels in the main Asian trading hub of Singapore. Latest Enterprise Singapore data showed that total stocks of middle distillates fell 5.87% on the week to 13.98 million barrels for the period ended June 17. The ease back snapped a nine-week run during which stocks consistently held above the 14 million barrels.

** Looking ahead, traders are awaiting the release of a buy tender this week from Kenya's Oil Industry Pipeline Co-ordination Secretariat, which is expected to seek gasoil for delivery over the July-August period.