European jet differentials break new records as Middle East war continues

The Northwest European jet fuel CIF cash premium to front-month ICE low sulfur gasoil hit a new record high March 10 as the market remained highly volatile, marked by supply concerns as the Middle East war continued, while the ICE LSGO futures contract saw some correction.

At plus $355.25/metric ton, the differential was the greatest since Platts, part of S&P Global Energy, started assessing ICE LSGO futures in 2005.

Market participants are expecting acute supply tightness in April and May because of the lack of ship traffic through the Strait of Hormuz amid the ongoing war.

Jet CIF NWE differentials broke three all-time records on March 3, 4 and 5, where they priced at a $350/mt premium to the March ICE low sulfur gasoil futures contract.

"Jet is tighter than diesel now, but it's too volatile; the spikes are from concerns around supply disruption," said a Europe-based trader.

"[The tightness] is a huge problem," a second European market participant said. "March is not a problem, but April will be a problem. Jet freight is quite far forward so everything is set for March."

The jet market will tighten significantly if the conflict continues and ship traffic through the Persian Gulf chokepoint cannot increase, according to market participants. This comes as the market was already tight with a drop in Indian and Chinese flows after the EU's 18th sanctions package on Russian-origin refined products came into effect Jan. 22.

The jet fuel market is tighter than diesel as jet has disproportionately fewer specialized tanks than diesel, said market participants. The strong effect on jet also comes on the back of a heavy reliance on imports from the Middle East and refinery closures in Europe over the past four years.

The Persian Gulf accounted for over half of jet imports to Northwest Europe and the Mediterranean last year, according to data from S&P Global Commodities at Sea., according to data from S&P Global Commodities at Sea.

Platts assessed the Mo1 ICE LSGO futures contract down $130.50/mt to $1,044/mt on March 10. Gasoil futures remain elevated due to a substantial risk premium but have softened amid easing sentiment following initial market anxiety over Middle East hostilities.

Last week, gasoil futures rallied as the market feared European distillate supply disruptions, amid the de facto closure of the Strait of Hormuz and damage to local energy infrastructure.

However, 11 days since the onset of strikes in the region, the European diesel market fundamentals remain balanced. The discharge of cargoes that were loaded in the Persian Gulf prior to the onset of the conflict and withdrawals from stocks may be supporting physical European diesel supply and alleviating sentiment in the futures market, according to traders.