Asia middle distillates: Key market indicators for Aug 16-20

Asian middle distillate markets started the Aug. 16-20 trading week on a steady note, with a rise in supply and tepid demand placing downward pressure on the gasoil sector while the highly transmissible delta variant continues to limit any upside in the jet fuel/kerosene sector.

At 10:05 am Singapore time (0205 GMT), the ICE October Brent crude futures contract was down 75 cents/b (1.06%) from the Aug. 13 close at $69.84/b.

Jet fuel/kerosene

** The front month September-October jet fuel/kerosene market structure remained in contango at minus 12 cent/b at 0830 GMT Aug. 13, widening 3 cents/b day on day, S&P Global Platts data showed. At 0205 GMT Aug. 16, brokers pegged the spread narrower at minus 7 cents/b.

** The FOB Singapore jet fuel/kerosene cash differential slipped into discount in the week of Aug. 10-13, and ended the week at minus 6 cents/b to Mean of Platts Singapore jet fuel/kerosene assessment, down 13 cents/b week on week, Platts data showed.

** Global aviation recovery was happening at a "snail's pace" and global airline capacity was expected to remain 40% below 2019 pre-pandemic levels, Cirium reported. "Airlines are still making revisions on a weekly basis and typically removing capacity from the schedule; however, it is less impactful than previously seen," Cirium said, adding that further revisions were possible for the remaining year.

** Major Asian refiners are cautiously optimistic that jet fuel sales will significantly boost profit margins from the first quarter of 2022 as they broadly expect international flights to rapidly open up from next February, anticipating more than half East Asia's population will be vaccinated by then. Of the 11 major Asian refiners including PetroChina, SK Innovation, ENEOS, Idemitsu, Petronas, S-Oil, Pertamina, PTT and Formosa surveyed by Platts, seven expect Asia's oil product demand to climb back to 2019 levels by February-March 2022 and three a expect full recovery by May-June 2022.

** The Q4 2021-Q1 2022 jet fuel/kerosene swap spread, an indication of near-term sentiment, averaged plus 10 cents/b over Aug. 10-13, narrowing 21 cents/b from plus 31 cents/b the week before.

Gasoil

** The September/October gasoil market structure was pegged at plus 11 cents/b at 0205 GMT Aug. 16, narrowing slightly from the plus 13 cents/b assessed at the 0830 GMT Asian close Aug. 13, Platts data showed.

** The September Exchange of Futures for Swaps or EFS spread was pegged at minus $11.49/mt at 0205 GMT Aug. 16, widening from minus $11.36/mt at the Aug. 13 Asian close, Platts data showed.

** The ultra low sulfur diesel market is likely to remain steady over the coming week as regional supply remains largely unchanged. Traders will be keeping a keen eye on tender results for one of the first September-loading spot cargoes of 10 ppm sulfur gasoil offered from South Korea's GS Caltex, which closed late Aug. 13. The refiner offered two cargoes of 10 ppm sulfur gasoil, each 300,000 barrels, for loading over Sept. 6-10 and Sept. 18-22.

** While the ULSD market was seen moving in a narrow range, downward momentum for the medium sulfur gasoil grade showed no signs of easing. Traders said regional demand for 500 ppm sulfur gasoil has taken a hit as several countries prolong lockdowns and tighten movement restrictions to curb a resurgence in coronavirus infections. Reflecting this, the FOB Singapore price spread between 10 ppm sulfur and 500 ppm sulfur gasoil widened to a 16-month high of $2.95/b at the Asian close Aug. 13, with ample supply and poor demand weighing on fundamentals. The pread was last higher at $3.08/b on April 16, 2020, Platts data showed.

** The Q4 2021-Q1 2022 gasoil swap spread, an indication of near-term sentiment, averaged plus 70 cents/b over Aug. 10-13, narrowing 24 cents/b from plus 94 cents/b the week before.