Asia middle distillates - Key market indicators this week

Singapore — Asian middle distillates is expected to soften this week, as a resurgence in COVID-19 infections around the region is likely to slow the demand recovery for gasoil and jet fuel, industry sources said Aug. 17.

October ICE Brent crude futures rose to $45.13/b at 0300 GMT Aug. 17, up 39 cents/b from $44.74/b at the 0830 GMT Asian close on Aug. 14.

JET FUEL/KEROSENE

** The front month September/October Singapore jet fuel timespread remained in a contango and was pegged at minus 92 cents/b at 0300 GMT Aug. 17, narrowing 1 cent/b from minus 93 cents/b on Aug. 14.

** Asia's aviation sector is poised for further headwinds amid a resurgence in the coronavirus pandemic, coupled with slower-than-expected recovery in the region. According to an S&P Global Platts Analytics report on Aug. 14, Asian jet fuel/kerosene demand is projected to contract 620,000 b/d on the year in the second half of this year, but an overall improvement from the 950,000 b/d annual drop in the first-half.

** Platts Analytics added that demand recovery for aviation fuel in India was slowed due to changes in lockdown restrictions, which led to further flight cancellations, and an extension of the international flight ban to late August. Local Indian demand is expected to drop 100,000 b/d in H2, similar to the decline seen in H1.

** The bearishness in the Asian jet fuel/kerosene market was borne out in the jet fuel/kerosene cash differential, which remained at a discount of 68 cents/b to the the Mean of Platts Singapore jet fuel/kerosene assessments on Aug. 14, down 30 cents/b, or 78.9%, since the beginning of the month.

** Further along the forward curve, the near term outlook remains relatively bearish, which was evident in the Q4/Q1 quarterly jet fuel/kerosene spread still in negative territory of minus $2.52/b at the 0830 GMT Asian close on Aug. 14.

** Looking ahead, however, the Asian aviation sector may see some respite as Singapore mulls travel bubbles, or travel corridors, with countries which have similar or better COVID-19 conditions, Singapore's transport minister Ong Ye Kung said on Aug. 14. Under these circumstances, leisure travellers will be exempted from serving a 14-day quarantine period upon arrival, and undergo "rigorous testing regime" instead.

GASOIL

** The contango in the Singapore September/October structure was valued at minus 47 cents/b at 0300 GMT Aug. 17, narrowing from minus 48 cents/b on Aug. 14.

** The September Exchange of Futures for Swaps spread was pegged at minus $4/mt at 0300 GMT Aug. 17, narrowing from minus $5.49/mt at the Aug. 14 Asian close. Industry sources said that a still firm Exchange of Futures for Swaps spread was trapping gasoil volumes in the region and directing barrels from the Persian Gulf to Singapore.

** Platts Analytics said in its Aug.14 report that Chinese demand in July dropped 275,000 b/d year on year due to widespread flooding. August demand is expected to pick up somewhat, but still 100,000 b/d lower compared with August 2019.

** Platta Analytics noted a similar situation in India, where July demand fell 315,000 b/d on the year, hindered by localized lockdowns, flooding and higher fuel prices. Business activity is likely to stay weak, impacted by the surge in COVID-19 cases. Responding to the sluggish demand, the country's largest state-owned refiner, Indian Oil, has reduced utilization rates at its nine refineries to 75%, from 93% over the first week in July.

** The weaker regional demand has resulted in Singapore's commercial middle distillate stockpiles to remain stubbornly above the 14 million-barrel mark for the second consecutive week. According to Enterprise Singapore data released late Aug. 13, middle distillate stockpiles eased 0.64% on the week over Aug. 6-12 to 14.51 million barrels, from 14.6 million barrels a week earlier.