Singapore jet fuel/kerosene cash differential slumps 74% after rise to 2-month high

The Platts-assessed FOB Singapore jet fuel/kerosene spot cash differential shed over two-thirds of its value within the span of a week Dec. 12, reversing a short bull run that lifted it to a two-month high.

At the 0830 GMT Asian close Dec. 12, Platts assessed FOB Singapore jet fuel/kerosene cash differential down 23 cents/b on the day to plus 61 cents/b to the Mean of Platts Singapore jet fuel/kerosene assessments, for a fourth straight decline, S&P Global Commodity Insights data showed.

This marked a 73.82% reversal from the two-month high of plus $2.33/b to MOPS jet fuel/kerosene assessments, FOB Singapore, reached on Dec. 6.

Nevertheless, the Singapore cash jet fuel/kerosene differential remains above the November average of plus 44 cents/b as supply-side fundamentals continued to keep a floor on the regional complex.

"Supply seems to be tight," a Straits-based trading source said Dec. 13, suggesting that the spike in the cash differential around the start of December was not an overvaluation.

China's December clean oil product exports volume is expected to face a strain given fewer available quotas, with the latest General Administration of Customs data showing that China exported 5.08 million mt of oil products in November, higher than previous industry estimates of 2.73 million mt.

The GAC will not publish a breakdown by product type until Dec. 18 and the basket of oil products was believed to include fuel oil, gasoil, gasoline and jet fuel.

While industry sources said the improvement in the regrade, the spread which measures the value of jet fuel over 10 ppm sulfur gasoil, led some refiners to tilt towards producing more jet fuel/kerosene over gasoil, not all have done so as the edge that jet fuel/kerosene has over its co-distillate remains marginal.

The Platts-assessed FOB Singapore physical regrade surpassed multi-year highs in early December. The regrade was assessed at plus $4.05/b at the Asian close Dec. 4, marking its highest level since March 2, 2018, when it was assessed at plus $4.10/b, S&P Global data showed. As of Dec. 12, the physical regrade eased to plus $1.21/b.

Aviation, heating demand remain firm

Rising air travel demand amid the approaching year-end festive season is likely to prop up the aviation fuel in the near term.

Global airline capacity rose 1.3% in the week beginning Dec. 11 to 104.7 million seats, flight scheduling data from OAG showed Dec. 12, amid rising Christmas season travel.

Capacity is expected to increase a further 3% next week as Christmas travel ramps up, while full year capacity is on track for 5.5 billion seats, 3.7% down from pre-pandemic levels in 2019 and up 17.2% from last year, the OAG data showed.

The uplift in passenger traffic is expected to continue into 2024, with airlines seen carrying a record 4.7 billion passengers in 2024, the International Air Transport Association said in a statement Dec. 6.

Total revenues are also expected to reach an all-time high in 2024, growing 7.6% on the year to $964 billion, according to IATA.

"People love to travel and that has helped airlines to come roaring back to pre-pandemic levels of connectivity. The speed of the recovery has been extraordinary," said IATA Director General Willie Walsh.

Traders also noted a recent pick up in heating demand ahead of cooler temperatures forecast for next week.

"I heard Japan may be importing...[There is] kerosene demand there," another Straits-based trader said.

According to Japan Meteorological Agency's latest weather forecast, below-average temperatures are set to sweep across Japan over Dec. 16-22 with a probability of 40% or more. Northern regions including Hokkaido are forecast to experience colder weather with a probability of 70% of more.

Over the longer term, growing demand is expected to lend support to the middle distillate. S&P Global analysts said in a Global Oil Products Scorecard report released Dec. 8 that jet fuel/kerosene demand is expected to maintain its upward momentum, cautioning, however, that the pace of recovery will still lag pre-COVID levels.

"On an annual basis, [jet fuel/kerosene] global demand is expected to grow 1.02 million b/d in 2023, up from 827,000 b/d in 2022. Growth this year is largely driven by Asia as China reopens for travel," the report stated.

"Global 2024 demand is set to climb 420,000 b/d on the year before rising 332,000 b/d in 2025. However, demand will remain below 2019 levels in both years as international travel will still be recovering."