Asia middle distillates - Key market indicators this week

Singapore — The Asian middle distillates market is expected to see divergence in the week started Aug. 23. The gasoil complex is struggling to find a positive footing amid sluggish demand against a backdrop of ample supply, while talks of travel bubbles are helping to buoy sentiment in the jet fuel market. That said, a resurgence of COVID-19 may dampen jet fuel demand recovery, keeping a lid on price gains, industry sources said Aug. 24.

ICE October Brent crude futures slipped to $44.35/b at 0300 GMT Aug. 24, 40 cents/b lower from $44.75/b at the 0830 GMT Asian close on Aug. 21.

JET FUEL/KEROSENE

** The front-month September-October Singapore jet fuel timespread remained in a contango structure, and was pegged at minus 88 cents/b at 0300 GMT Aug. 24, narrowing 2 cents/b from minus 90 cents/b on Aug. 21.

** Asia's aviation sector saw some respite in the week on positive headline news, providing some much-needed support. On Aug. 22, Singaporean Health Minister Gan Kim Yong said general travels to Brunei and New Zealand will be permitted from Sept. 1, adding that travelers who have remained in these two countries for the past 14 consecutive days will not be required to serve a stay-home notice upon arrival.

** In addition, Singapore Airlines and its regional arm, SilkAir, will also be increasing flights in their passenger network in August, September, and October by reinstating flights to Cebu, Istanbul, Milan, Perth, Phnom Penh, and Taipei. SIA added that by the end of October, the Group's passenger capacity will reach approximately 8% of its pre-COVID-19 levels, up from 4% in March.

** That said, international passenger flights are unlikely to return any time soon on tightened border controls due to concerns of imported cases, S&P Global Platts Analytics reported on Aug. 20. Platts Analytics added that China's total oil demand is expected to decline by 0.5% but kerosene/jet fuel use is projected to be down by a whopping 38%.

** The bearish outlook was also evident in the derivatives market, with the Q4/Q1 quarterly spread remaining in negative territory at minus $2.85/b on Aug. 21, widening 29 cents/b from the beginning of the month.

GASOIL

** The contango in the Singapore September-October structure was valued at minus 48 cents/b at 0300 GMT Aug. 24, narrowing from minus 60 cents/b on Aug. 21.

** The September Exchange of Futures for Swaps spread was pegged at minus 50 cents/mt at 0300 GMT Aug. 24, narrowing from minus $2.40/mt at the Aug. 21 Asian close.

** The outlook for the Asian gasoil market is expected to remain bearish for the week ahead, with limp demand and higher supplies still the main factors of concern.

** Market participants said a still firm EFS spread would continue to direct barrels from India and the Persian Gulf to Singapore, as well as trap gasoil volumes in the region.

** Latest spot tender information for gasoil cargoes for loading over September from South Korea has mirrored the weakness in the market, with barrels heard being traded at discounts of at least $1/b to the Mean of Platts Singapore gasoil assessments. Traders said other volumes still available in the spot market were heard being offered at even deeper discounts, FOB South Korea. This, however, could not be confirmed.

** Against this backdrop, industry sources said Aug. 24 that Sri Lanka's Ceylon Petroleum Corp. has canceled its earlier issued tenders to buy gasoil from the spot market. The state-owned company had floated tenders to buy a total of 507,500 barrels of 500 ppm sulfur gasoil and 52,500 barrels of 10 ppm sulfur gasoil, for delivery over September and October. Reasons for the tender cancellation could not immediately be confirmed.