Asia middle distillates - Key market indicators this week

Singapore — The Asian middle distillates market is expected to remain weak as the gasoil complex is weighed down by a supply glut amid weak demand, while the aviation sector demand is still tepid as most international flights are curtailed.

ICE November Brent crude futures fell to $42.24/b at 0300 GMT Sept. 7, $2.01/b lower from $44.25/b at the 0830 GMT Asian close on Sept. 4.

JET FUEL/KEROSENE

** The prompt balance September-October Singapore jet fuel timespread remained in a contango and was pegged at minus 95 cents/b at 0300 GMT Sept. 7, narrowing 27 cents/b from minus $1.22/b at the 0830 GMT Asian close on Sept. 4.

** Asia's aviation sector saw suppressed demand amid the resurgence of the coronavirus pandemic, and the Singapore commercial stockpile of jet fuel and gasoil surged to a nine-year high of 16.02 million barrels in the week Aug. 27 to Sept. 2. Industry sources pointed out that the spike in inventories was due to slow draws of aviation fuel as most international flights in the region remained curtailed.

**In Hong Kong, tepid air travel demand has also led imports to fall and inflow registered at 395,539 kilolitres in July, marking a 41.05% fall year on year. On that note, flagship carrier Cathay Pacific reported that it, together with Cathay Dragon, carried only 42,984 passengers in July, marking a slump of 98.7% compared with July 2019.

**The underwhelming air travel demand has the FOB Singapore jet fuel/kerosene prices lower, and the FOB Singapore jet fuel cash differential was assessed at a discount of $1.25/b to the Mean of Platts Singapore jet fuel/kerosene assessments on Sept. 4. The cash differential had fallen to more than a three-month low of MOPS minus $1.31/b on Sept. 3, Platts data showed.

** That said, the Asian aviation sector could see some respite as demand recovery continues and more flights resume, and demand is expected to increase from 1.3 million b/d in Q2 to 1.7 million b/d in Q3, S&P Global Platts Analytics reported earlier.

GASOIL

** The contango in the balance month Singapore September-October structure was valued at minus 60 cents/b at 0300 GMT Sept. 7, steady from the 0830 GMT close on Sept. 4.

** The September Exchange of Futures for Swaps spread was pegged at plus $4/mt at 0300 GMT Sept. 7, down slightly from plus $4.19/mt at the Aug. 28 Asian close.

** A well supplied market as well as weak demand remain the defining characteristics of the Asian gasoil market, which has been weighed down by bearish fundamentals, market participants said.

** High inventory levels have underscored the slow digestion of barrels within the region, with the latest Enterprise Singapore data released Sept. 3 showing that commercial stockpiles of middle distillates had soared to a nine-year high of over 16 million barrels.

** Meanwhile, a still firm Exchange of Futures for Swaps, or EFS spread, will likely direct incremental volumes of gasoil from India and the Persian Gulf into the Asian region, traders said, with this adding to expectations of even higher gasoil supplies in an already saturated market.

** Against this backdrop, the Singapore physical 10 ppm sulfur gasoil crack to front-month cash Dubai has hit a record low, closing down 27 cents/b to $2.43/b at the Asian close Sept. 4.