Asia middle distillates - Key market indicators this week

Singapore — The expectations of higher outflows from northeast Asia coupled with growing concerns of rising coronavirus infections reported around the region are likely to weigh on sentiment in the Asian middle distillates market.

September ICE Brent crude futures slid to $43.18/b at 0300 GMT July 27, 18 cents/b lower from $43.36/b at the 0830 GMT Asian close on July 24.

Jet fuel/Kerosene

** The front month August/September Singapore jet fuel timespread was pegged at minus 46 cents/b at 0300 GMT July 27, up 8 cents/b from minus 54 cents/b on July 24.

** The Asian jet fuel/kerosene market has seen a slight uptick in activity, and sources expect kerosene demand this year to be better than the previous years, as most people are likely to stay indoors in the wake of the pandemic.

** That said, AAPA cautioned of prolonged bearishness ahead as most international flights worldwide continue to be grounded by border closures, and other travel restrictions. AAPA added that while there have been initiatives and discussions about opening up international air corridors -- travel bubbles, green lanes or fast channels -- such initiatives have so far failed to take off due to their impractical requirements and inherent unscalability to meet the reasonable expectations of the travelling public.

** The resurgence of COVID-19 has affected air travel demand and capped gains. As a result, the FOB Singapore jet fuel/kerosene cash differential was assessed at a discount of 41 cents/b to the Mean of Platts Singapore jet fuel/kerosene assessment on July 24, marking a 27 cent/b decline on the week.

** Further down the curve, the Q4/Q1 jet fuel/kerosene spread widened 6 cents/b on the week to minus $2.16/b July 24, Platts data showed. Looking ahead, market sources will seek fresh development on border control policies from governments on the containment of the viral disease.

Gasoil

** The backwardation in the Singapore front month August/September structure was valued at plus 5 cents/b at 0300 GMT July 27, inching up from plus 4 cents/b at the July 24 Asian close.

** The front month August Exchange of Futures for Swaps spread was pegged at minus $4.75/mt at 0300 GMT July 27, narrowing from minus $4.90/mt at the July 24 Asian close.

** Looking ahead, traders are expecting sentiment in the Asian gasoil market to soften over August amid expectations of higher export volumes from the major supply centers of Northeast Asia.

** Export volumes from China, in particular, are being seen higher for August due to domestic gasoil consumption volumes taking a hit as the country grapples with torrential rains which have caused widespread floods.

** Even as Asian spot supplies are seen higher however, traders said that arbitrage economics to send gasoil volumes to the West are still not workable, which may lead to surplus volumes being trapped in Asia and possibly weighing down on the overall gasoil complex.

** This has been borne out with latest data from Enterprise Singapore, which showed that Singapore's middle distillate commercial stockpiles hit a six-week high in the week to July 22 on the back of a pullback in export volumes. According to the government agency, total stocks of gasoil, kerosene and jet fuel jumped 5.6% to 14.1 million barrels in the week to July 22.

** Concerns over a rise in coronavirus infections being reported across regional countries have also stoked demand worries, with Malaysia announcing over the weekend that it may reimpose movement control restrictions should COVID-19 cases continue to spiral upwards, while in Vietnam, the country is on high alert after reporting its first local infection after three months.