Asia middle distillates - Key market indicators this week

Singapore — The Asian middle distillates market opened the week on a steady note, with industry sources saying that both jet fuel and gasoil were still moving towards more balanced fundamentals, on the back of a gradual uptick in demand.

But softer sentiment could lie ahead on lingering concerns of a second wave of coronavirus infections, with daily global recorded numbers of confirmed cases still spiralling upwards.

September ICE Brent crude futures slipped 40 cents/b to $42.80/b at 0300 GMT on July 13, from $43.20/b at the 0830 GMT Asian close on July 9. There was no Asia close assessment on July 10 as it was a public holiday in Singapore.

JET FUEL/KEROSENE

**The balance month July/August Singapore jet fuel timespread kicked off the week on a relatively softer note, narrowing 8 cents/b from July 9 to minus 65 cents/b at 0300 GMT on July 13.

**The Asian jet fuel/kerosene sector was capped amid signs of a slow recovery ahead after local flagship carrier, Singapore Airlines, announced a mere 1% increase in flight frequency from June to 7% in August, the airline group reported July 10.

**Further down the derivatives market, the Q4 2020/Q1 2021 quarterly jet fuel/kerosene spread trended lower week on week and was assessed at minus $2.31/b on July 9, widening 37 cents/b week on week, S&P Global Platts data showed.

**On the refining margin front, FOB Singapore jet fuel against the front month cash Dubai flipped into negative territory in the week started July 5, and was assessed at minus 18 cents/b on July 9, as refiners opted to maximize gasoil output over jet fuel in light of weak demand for aviation fuels, industry sources said.

**The FOB Singapore jet fuel/kerosene cash differential registered a discount of 29 cents/b to the Mean of Platts Singapore jet fuel/kerosene assessment on July 9, rising 18 cents/b, or 38%, week on week.

**Industry sources attributed the rise in the FOB Singapore jet fuel cash differential to rising domestic recovery in Asia. According to aviation analytics company Cirium on July 10, Asia-Pacific countries account for 54% of the world's total domestic flights, followed by North American countries at 33%, European countries with 9% and Latin American countries clocking in with just 4%.

GASOIL

**The backwardation in the Singapore balance July/August structure was valued at plus 50 cents/b at 0300 GMT on July 13, up slightly from plus 41 cents/b on July 9.

**The front month August Exchange of Futures for Swaps spread was pegged at minus $2.61/mt at 0300 GMT on July 13, widening slightly from minus $2.59/mt assessed at the July 9 Asian close.

**South Korea's August-loading export program for gasoil cargoes are expected to commence the week starting July 12. Traders will be keeping an eye on available volumes, which are expected to provide some pricing direction for the product in the region.

** S&P Global Platts previously reported that South Korea's June and July export programs yielded very few spot cargoes of gasoil. This was due to ongoing refinery run cuts, maintenance and idling of refinery units which have tightened balances, even as regional demand has improved.

** Some traders said that regional gasoil fundamentals are moving towards a more balanced situation, with demand gradually improving even as supplies are still seen crimped.

**But there are concerns that gasoil exports from China, which are expected to be higher over the second-half of 2020, could overwhelm the market, with demand still seen fragile amid uncertainty over concerns of a second wave of coronavirus cases.