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Asia jet fuel cracks slip to 9-month low, traders expect further weakness

Singapore — The front month May Singapore jet fuel/kerosene price against Brent -- or the crack spread which measures the relative value of the product to crude oil -- slumped to a 9-month low Monday on the back of weak market fundamentals.

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At the Asian close Monday, Asian jet fuel/kerosene against Brent was $11.81/b, down 50 cent/b and the lowest since July 16, 2018, S&P Global Platts data showed.

Market participants attributed the slump to lackluster market fundamentals in the physical spot market.

The Asian jet fuel/kerosene spot market remains fundamentally weak, given its recent transition into the 'shoulder season' when demand is at an annual low before recovering again for the summer travel season.

Traders said that the market could yet weaken further, as refinery outages in California that drew Northeast Asian barrels are only temporary.

"Jet demand is seasonally very weak in Q2," a source at a Northeast Asian refiner said. "Only refinery outages or hurricanes will help improve jet -- but only in the short term."

Platts assessed FOB Singapore jet fuel/kerosene cash differentials at 2 cent/b higher on the day at minus 17 cents/b.

Industry sources also attributed the weakness in outright jet fuel prices to recent slide in benchmark crude oil prices.

"Global oil benchmarks cooled from a sixth consecutive week rally as market sentiments dimmed on talks of rising output from OPEC/non-OPEC," Benjamin Lu, commodities analyst at Phillip Futures, said Tuesday.

REGRADE HOVERS AROUND THE -$1/B MARK, GASOIL SUPPLIES PLENTIFUL

The front-month Singapore May paper regrade -- a measure of the relative strength of jet/kerosene to gasoil -- hovered around the minus $1/b mark to be assessed at minus $1.02/b Monday.

Tightening gasoil supplies in Asia due to the impending heavy turnaround season in the second quarter has helped to buoy sentiment, especially in the near term.

However, several participants deemed that it was still insufficient to shake off the excess gasoil in the market. "It's a tough market to call now," a regional trader based in Singapore said, noting that there are plentiful supplies despite turnarounds.

Another trader agreed, saying the market is "unexpectedly weak considering we have big turnarounds .. but what surprised me is that it doesn't seem to have been reducing [supply] that much which tells me we might be underestimating the spare capacity available."

The recent announcement from China's Ministry of Commerce allowing some state-owned companies to swap gasoline export quotas for other refined products like gasoil and jet fuel has spilled surplus barrels into the spot market. In late March, the Chinese government swapped 700,000 mt of CNPC's gasoline export quota with 400,000 mt of gasoil and 300,000 mt of jet fuel.

Adding to the bearishness, a narrow front-month Exchange of Futures for Swaps, which has hovered around minus $6/mt, has kept a lid on cross-regional flows, trapping surplus barrels within the region.

The EFS measures the relative strength of the FOB Singapore 10 ppm sulfur gasoil swap against the ICE Low Sulfur Gasoil Futures contract. Market participants estimate that the EFS generally needs to widen to around minus $10-15/mt, before arbitrage economics to send gasoil barrels to the West are workable.

Participants also drew comparison to the same time last year, when leaner supplies due to lesser exports during the scheduled maintenance season coupled with healthy cross-regional flows helped move surplus barrels from Asia to the west of Suez.

Reflecting this, cash differentials for ultra-low sulfur diesel cargoes loading from the main trading hub of Singapore have been struggling to recover after dipping into negative territory since November 16, 2018.

FOB Singapore 10 ppm sulfur gasoil Monday was assessed at minus 20 cents/b to MOPS gasoil assessment, up 9 cents/b from the previous day.

--Ng Jing Zhi, jz.ng@spglobal.com

--Su Yeen Cheong, suyeen.cheong@spglobal.com

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

--Edited by Claudia Carpenter, claudia.carpenter@spglobal.com