Asia middle distillates: Key market indicators this week

Singapore — The Asian middle distillates market is poised to head into the first week of February on a mixed footing. While seasonal demand for heating fuel from Northeast Asia is keeping the jet fuel/kerosene complex afloat, several key indicators on the aviation front spoke of prolonged bearishness ahead and dampened any hopes of a recovery in the sector.

Meanwhile, trade sources see the gasoil market as precariously balanced, with demand still weak, yet supply still tight on the back of refinery closures and turnarounds.

ICE April Brent crude futures dipped 2 cents/b to $55.15/b at 0300 GMT Feb. 1, from the 0430 GMT Asian close on Jan. 29 at $55.17/b.

JET FUEL/KEROSENE

** The balance-month February-March jet fuel/kerosene timespread was pegged at minus 27 cents/b at 0300 GMT Feb. 1, rolling over from the 0830 GMT Asian close Jan. 29.

** The FOB Singapore jet fuel/kerosene cash differential was largely steady week on week on the back of mixed fundamentals, and was assessed at minus 20 cents/b to the Mean of Platts Singapore jet fuel/kerosene assessments on Jan. 29, inching down by 1 cent/b week on week.

** Tepid air travel demand continues to drag the Asian aviation complex lower. According to the latest report by the Association of Asia Pacific Airlines released Jan. 29, Asia Pacific airlines carried only 1.55 million international passengers in December, which was a mere 4.6% of the 33.8 million recorded in the same month of 2019.

** Market talk of an extended state of emergency in Japan might support kerosene prices given the cold weather outlook for northern Japan the next month. The Japan Meteorological Agency's latest month-long weather forecast released on Jan. 28 showed that Hokkaido in the north will experience temperatures, which are below the 30-year average until Feb. 28.

** The Q2-Q3 quarterly jet fuel/kerosene swap spread -- an indication of near-term sentiment -- averaged minus 55 cents/b for the week of Jan. 25-29, down 10 cents/b from the previous week's average of minus 45 cents/b.

GASOIL

** The balance month February-March gasoil market structure was pegged at minus 2 cents/b at 0300 GMT, narrowing 8 cents/b from minus 10 cents/b at the Asian close on Jan. 29, Platts data showed.

** The February Exchange of Futures for Swaps spread was pegged at plus $2.50/mt at 0300 GMT Feb. 1, widening from an assessed plus 75 cents/mt at the Jan. 29 close.

** Asian market participants had mixed opinions about the gasoil market in the week ahead, with some saying that February may be a challenging month for the product amid still high exports seen from China, slower trading activity due to the Lunar New Year holidays, and uncertain gasoil demand as the pandemic evolves and intensifies across the region.

** But other traders said the market could be on the cusp of change, with leaner supplies potentially providing some support to the complex. Of note were newbuild vessels heard to be entering the market in February, with sources saying that some gasoil barrels may be drained out of the region by these vessels. In addition, refinery maintenance and outages in the months ahead are also expected to lend some support, with the market structure for forward months already seen in a backwardated structure.

** The Q2-Q3 quarterly gasoil swap spread -- an indication of near-term sentiment -- averaged at minus 8 cents/b for the week of Jan. 25-29, inching 2 cents/b higher from the previous week's average of minus 10 cents/b.