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Singapore regrade swap falls to near 2-month low on weak jet, improving gasoil

Singapore — The front-month Singapore regrade swap -- a measure of the relative strength of jet fuel/kerosene versus 10 ppm sulfur gasoil -- fell to a near two-month low Thursday, driven by a combination of weak jet fuel fundamentals and a steady improvement of the gasoil complex in Asia.

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At the Asian close Thursday, the February paper regrade was assessed at 74 cents/b, falling 8 cents/b day on day. Week on week, the Singapore paper regrade slipped 62 cents/b from January 3 when it was assessed at $1.36/b, S&P Global Platts data showed.

The front-month Singapore paper regrade swap was last lower on November 15 when it was assessed at 42 cents/b, Platts data showed.

The bearishness could also be seen further down the curve with the Q2 regrade assessed at 55 cents/b, down 7 cents/b day on day.

Asia's jet fuel/kerosene spot market continues to see an uncharacteristically weak Q1 this year, given a glut in surplus cargoes and tepid import buying interest from Japan. Demand for the middle distillate typically spikes in the winter, when it is used as a heating oil.

Latest data from the Petroleum Association of Japan showed the country's kerosene stocks stood at 15.59 million barrels in the week ended January 5. Stocks were 18.4% higher than where they were last year, according to Platts data.

Further downside was also seen from expectations of higher jet fuel exports from China, where Beijing awarded a combined 11.82 million mt in jet fuel export quotas to state-owned oil companies during its first round of 2019 allocations -- 4.47 million mt under the general trade route and 7.35 million mt under the more restrictive trade processing route. This is a 31.9% year-on-year jump from the volumes awarded during the first tranche of 2018 quotas.

Market participants also said that high freight rates and a closed trans-Pacific arbitrage window meant that cargoes had nowhere else to go, pressuring cash differentials.

Cash differential for the benchmark FOB Singapore jet fuel/kerosene assessment fell to a three-year low of Mean of Platts Singapore jet fuel/kerosene assessments minus $1.37/b on January 4. It was last assessed lower on August 12, 2015 at minus $1.42/b.

Meanwhile, sentiment in the Asian gasoil market has been in a state of flux this week amid mixed opinions heard from traders. Some sources said the market appeared to have been on an upward trajectory, spurred by a recovery seen in the market over the past two weeks. This was heard to have been driven by gasoil volumes leaving the region and barrels being placed into storage, which had aided in clearing the overhang of excess volumes that had earlier been pressurizing the market.

But other traders this week cautioned that overall demand was still fragile, with supply in the Middle East and Northeast Asian markets seen at relatively high levels.

Still, market participants said the Asian gasoil market was generally finely balanced at the moment, with some respite seen from Chinese gasoil volumes leaving the region.

"I see less Chinese barrels coming to Singapore ... some are being moved out of the region," a trader said this week, adding that volumes were moving to Latin America and East Africa.

"I also think some will go to Europe because Chinese barrels are good winter quality [grade]," he said.

Adding to this, scheduled regional refinery turnarounds helped limit supply to a region already pressured by anemic demand.

At the Asian close Thursday, the cash differential for the benchmark FOB Singapore 10 ppm sulfur gasoil grade inched up 3 cents/b to MOPS Gasoil assessments minus 38 cents/b.

In the paper market, the front-month February/March gasoil spread also narrowed, climbing 6 cents/b to be assessed at minus 41 cents/b at the Asian close Thursday.

--Jin Ming Lim, jinming.lim@spglobal.com

--Zameer Yusof, zameer.yusof@spglobal.com

--Clarice Chiam, clarice.chiam@spglobal.com

--Edited by Irene Tang, irene.tang@spglobal.com