Asia middle distillates - Key market indicators this week

Singapore — The Asian middle distillate complex is expected to diverge further in the week starting Nov. 2 as gasoil is expected to face further headwinds from closed arbitrage lanes to the West, while firmer demand for heating kerosene ahead of the winter season is likely to support jet fuel/kerosene values.

ICE January Brent crude futures stood at $36.63/b at 0300 GMT Nov. 2, down $1.62/b from the 0830 GMT Asian close on Oct. 30.

JET FUEL/KEROSENE

** The jet fuel/kerosene market was firmer in mid-morning trade Nov. 2 from the previous session on heightened heating oil demand ahead of winter. Brokers pegged the balance-month November-December jet fuel timespread at minus 55 cents/b at 0300 GMT, narrowing 11 cents/b from the 0830 GMT Asian close on Oct. 30.

** According to the Japan Meteorological Agency in late October, Japan's kerosene demand is set to rise on expectations of a colder-than-usual temperature in the next three months, as temperatures in 10 of Japan's 12 regions was forecast at below the 30-year average over November-January.

** Japan's largest refiner, ENEOS, said late October that the country's estimated kerosene demand for October jumped 24% year on year to around 880,000 kiloliters, or 178,549 b/d, as heating demand picked up due to lower temperatures. According to the Petroleum Association of Japan, kerosene stocks slid 2.2% week on week to 18.18 million barrels in the week to Oct. 24.

** The FOB Singapore jet fuel/kerosene cash differential rose 9 cents/b, or 13.43%, week on week to settle at a discount of 58 cents/b to the Mean of Platts Singapore jet fuel/kerosene assessments on Oct. 23, Platts data showed.

** The FOB Singapore jet fuel/kerosene crack spread for physical cargoes against front-month cash Dubai was assessed at plus $2/b Oct. 30, up $1.23/b week on week from Oct. 23.

GASOIL

** The prompt balance November-December gasoil market structure stood at a contango of minus 45 cents/b at 0300 GMT, narrowing from minus 51 cents/b at the Asian close on Oct. 30, Platts data showed.

** The November Exchange of Futures for Swaps spread was pegged at plus $3/mt at 0300 GMT, widening from plus 6 cents/mt at the Oct. 30 Asian close. The firm EFS spread will further frustrate arbitrage efforts to move surplus Asian and Persian Gulf gasoil barrels to the West.

** The strengthening of the EFS spread into positive territory comes on the back of news released over the weekend that the UK government has ordered the country into a second lockdown due to spiraling coronavirus infections, which is threatening to overwhelm healthcare services. With population movement only allowed for the purposes of education, work and exercise, traders said diesel consumption will be affected with demand, already ailing, likely to worsen.

** The Asian gasoil market is expected to see an increase in middle distillate demand from Australia after BP announced on Oct. 30 that it will close its 146,000 b/d Kwinana refinery located in Perth, which will be turned into an import terminal. Platts data, based on official statistics, showed that Western Australia's diesel demand totaled 118,000 b/d in 2019. "The announced closure of BP's Kwinana refinery should lead to a long-term increase for Australia's gasoil imports," Platts Analytics said, in a report released late Oct. 30.

** The outlook for the Asian gasoil market remains downbeat, with middle distillate inventories touching an 8-week high, the latest Enterprise Singapore data showed. Commercial stockpiles jumped by more than a million barrels for the week ended Oct. 28 to hit 15.84 million barrels, reflecting a sluggish drawdown in gasoil stocks. But market participants said an extended period of regional refinery run cuts have helped, with supply balances gradually tightening.