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Analysis: Singapore jet fuel cash differential to flip to discount as virus paralyzes demand


Singapore jet fuel cash differential tumbles 32 cents/b over February

Jet fuel demand paralyzed as airlines pare back flights to China, tourism numbers fall

Outlook dims for jet fuel as coronavirus epidemic drags on

Singapore — The cash differential for jet fuel cargoes loading in Singapore is poised to flip to a discount after sliding 32 cents/b in February so far to parity, amid compounding demand losses from the aviation sector in the wake of the coronavirus outbreak, market sources said Thursday.

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At the Asian close Wednesday, the cash differential for FOB Singapore jet fuel/kerosene slipped 4 cents/b day on day to settle at parity to the Mean of Platts Singapore jet fuel assessments, S&P Global Platts data showed.

The jet fuel cash differential has been in premium territory for most of the year, except for 2 days in January and its slide to parity Wednesday. Platts data showed that the cash differential for jet fuel cargoes loading from Singapore was assessed at minus 7 cents/b and minus 8 cents/b to MOPS jet fuel assessments on January 7 and 8, 2020.

"If there was a headcount trade out there, it has to be oil markets as the more people affected and shuttered by the flu, the less demand for oil," said Stephen Innes, chief market strategist at AxiCorp.

"But the most damaging immediate effects are getting felt from the number of airlines canceling flights into China that are toppling like dominoes, as this is lost demand the oil producers can't make up," he added.

Also echoing the bearishness, the US Energy Information Administration on Tuesday cut its outlook for China's liquid fuel demand between February and April to 14.8 million b/d, down by 400,000 b/d compared with last month's outlook.

"Jet fuel demand is likely to fall because of travel restrictions, and demand for other oil products is likely to fall because of lower economic growth," the EIA said.


In addition to lower aviation fuel demand, the tourism sector in Asia is starting to see repercussions as various countries ramp up preventive measures to combat the coronavirus.

Earlier this week, Malaysia expanded its ban on visitors from Hubei province to include Zhejiang and Jiangsu provinces. This came after China extended its lockdown to five cities in Zhejiang, and two cities in Jiangsu.

Over in Singapore, which has one of the higher number of confirmed infections outside of China, the government raised its risk assessment of the coronavirus disease situation in the city-state, and also announced it would refuse entry or transit for new visitors with recent travel history to China within the last 14 days.

In addition, visa-free transit facilities and new visas for Chinese passport holders have been suspended. Chinese tourists account for around 20% of international visitor arrivals into Singapore, according to The Singapore Tourism Board, which is also forecasting a 25%-30% fall in visitor arrivals this year, surpassing the 19% decline during the 2003 SARS outbreak.


The bearishness was also reflected in the derivatives market, with the March/April jet fuel spread remaining in a contango structure of minus 22 cents/b at the Asian close Wednesday.

A contango market structure means that jet fuel is unable to command higher prices at the prompt.

The weakness was also evident further down the curve with the Q2/Q3 quarterly spread being embedded in negative territory of minus 97 cents/b, down $2.01/b since the beginning of the year.

That said, the performance of refined product cracks is relatively positive, outside of China, Platts Analytics said in a report earlier in the week.

"While the coronavirus has dragged crude prices lower, product prices have seen a gentler decline due to support from an increased level of refinery maintenance. Heavy outages in the Middle East during Q1 2020 are drawing more gasoline imports into the region, while also reducing exports of gasoil," the report added.

Reflecting that, the FOB Singapore jet fuel physical crack spread on Wednesday strengthened against front-month cash Dubai, rising 28 cents/b day on day to $10.18/b. The cracking margin had previously fallen as low as $8.22/b on January 31, Platts data showed.