Asia middle distillates - Key market indicators this week

Singapore — The Asian middle distillates complex opened the week on a largely steady note, but market sentiment could soften ahead on demand concerns for both jet fuel and gasoil amid a resurgence in coronavirus cases reported regionally, which has dampened demand for both products.

October ICE Brent crude futures climbed to $45.18/b at 0300 GMT Aug. 11, 43 cents/b higher from $44.75/b at the 0830 GMT Asian close on Aug. 7.

JET FUEL/KEROSENE

** The balance month August/September Singapore jet fuel timespread remained in a contango structure and was pegged at minus 65 cents/b at 0300 GMT Aug. 11, narrowing 2 cents/b from minus 67 cents/b on Aug. 7.

** The slight narrowing of the prompt month timespread came as China's domestic air traffic continues to normalize and flight impairments had declined to only 8% earlier in the week, but most recently is running at about 11%, S&P Global Platts Analytics reported Aug. 7.

** That said, Platts Analytics added that the overall recovery is still very slow, and that the situation "remains challenging". Platts Analytics estimated that global commercial flights have recovered to around 50% of pre-coronavirus levels, but at much-reduced passenger numbers and seat utilization.

** Demand for aviation fuels in the Asian jet fuel/kerosene market remained languid and was also reflected in the jet fuel/kerosene cash differential, which was assessed at a discount of 68 cents/b to the the Mean of Platts Singapore jet fuel/kerosene assessments on August 7, down 30 cents/b, or 78.9%, since the beginning of the month.

** Further along the forward curve, lingering concerns over the resurgence of COVID-19 was evident with the Q4/Q1 quarterly jet fuel/kerosene spread remaining in negative territory of minus $2.34/b at the 0830 GMT Asian close on Aug. 7.

** Looking ahead, market sources maintained a bleak outlook for the Asian aviation sector, adding that demand for aviation fuel is likely to remain suppressed until a vaccine for the virus is found.

GASOIL

** The contango in the Singapore balance month August/September structure was valued at minus 14 cents/b at 0300 GMT Aug. 11, steady from the Aug. 7 Asian close.

** The balance month August Exchange of Futures for Swaps spread was pegged at minus 79 cents/mt at 0300 GMT Aug. 11, narrowing from minus $1.61/mt at the Aug. 7 Asian close.

** The week ahead could see downward pressure being maintained on the Asian gasoil market amid ongoing demand concerns. Several regional countries have implemented travel and movement restrictions in a bid to curb the resurgence in COVID-19 cases, with these actions expected to take a toll on gasoil consumption.

** But some traders have said that improving arbitrage economics -- led by a decline in freight rates -- could offer some relief to the Asian gasoil market. An outflow of Asian gasoil volumes to the West would help drain surplus barrels from the region and divert Middle East and Indian barrels westwards, releasing any potential build-up in pressure caused by barrels being trapped within the region.

** Still, latest data from Enterprise Singapore released Aug. 6 showed that middle distillate stocks in Singapore jumped to a seven-week high, climbing 6.8% to 14.6 million barrels for the week ending Aug. 5.

** In its latest report released Aug. 10, Platts Analytics said that despite gradually improving gasoil demand in both Asia and the Atlantic Basin, global diesel/gasoil crack spreads are expected to remain under pressure for the rest of the summer, tracking the low end of their respective historical ranges. "With the assumption of normal winter weather this year [compared with the last heating season, which was exceptionally warm], distillate cracks might see some support later in the year. However, high inventories will restrain sharp upward swings," the report said.