Asia middle distillates - Key market indicators this week

Singapore — The Asian middle distillates market is expected to see some support in the week ahead as the increase in flight capacities by regional airlines is set to ignite some jet fuel demand, while interest to store surplus barrels on floating storage coupled with an uptick in cross-regional flows is poised to shore up sentiment in the gasoil arena.

ICE November Brent crude futures inched up to $40/b at 0300 GMT Sept. 14, just a cent higher from $39.99/b at the 0830 GMT Asian close on Sept. 11.

JET FUEL/KEROSENE

** The prompt balance September-October Singapore jet fuel timespread has narrowed steadily, and was pegged at minus $1.12/b at 0300 GMT Sept. 14, narrowing 2 cents/b from minus $1.14/b at the 0830 GMT Asian close on Sept. 11.

** Asia's aviation sector saw some respite on rising airline capacities. Singapore Airlines reported in an updated post on Sept. 11 that the carrier has increased the frequency of selected services in their passenger network in September, October and November, bringing the group's passenger capacity to about 11% of its pre-pandemic levels, as compared with the 4% in March.

** Market sentiment was also firmer on the back of cross-country business and official travels. Singapore and Japan, for one, have agreed on a business track or "reciprocal green lane" to facilitate essential business and official travel between the two countries from Sept. 18, the countries' foreign ministries said in a joint press release on Sept. 11.

** The uptick in sentiment pushed the FOB Singapore jet fuel/kerosene cash differential up to a discount of $1.20/b to the Mean of Platts Singapore jet fuel/kerosene assessments on Sept. 11, strengthening 5 cents/b week on week, Platts data showed.

** That said, Asian jet fuel/kerosene demand is projected to increase from 1.92 million b/d in first-half 2020 to 1.96 million b/d in H2, but still registering a significant decline of 925,000 b/d on the year, according to an S&P Global Platts Analytics report on Sept. 11.

GASOIL

** The contango in the balance September-October gasoil market structure was valued at minus 51 cents/b at 0300 GMT Sept. 14, narrowing 3 cents/b from the minus 54 cents/b assessed at the 0830 GMT close on Sept. 11.

** The November Exchange of Futures for Swaps spread was pegged at plus $1.50/mt at 0300 GMT Sept. 14, down from plus $1.64/mt at the Sept. 11 Asian close.

** The Asian gasoil market may see some support in the week ahead, with traders eyeing an uptick in activity for the middle distillate. The pick up in pace revolves around a handful of market participants moving gasoil onto ships for storage or for a delayed discharge in the West.

** Industry sources said that should these moves continue, it could potentially provide an outlet for excess gasoil volumes to flow into, which would aid in absorbing the supply glut in the region.

** But other traders said the outlook for the Asian gasoil market remains challenging, due to persistently low demand in the region, which has seen minimal success in containing the spread of the coronavirus. Indonesia announced over the weekend that its capital, Jakarta, will soon reimpose large-scale social restrictions in a bid to curb the rampant spread of the coronavirus due to daily escalations in transmission numbers, while Myanmar has expanded its lockdown measures in its bid to fight against the second wave of infections. Meanwhile, India has overtaken Brazil to record the second-highest number of confirmed COVID-19 cases in the world, with the country also posting the highest daily increase in confirmed cases.