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Asia middle distillates: Key market indicators for July 19-23

Asian middle distillate markets are entering the July 19-23 trading week on a steady-to-firmer note, with tighter supply balances lending support to the gasoil sector while a resurgence in COVID-19 in Asia continues to weigh on jet fuel/kerosene demand.

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At 10:00 am Singapore time (0200 GMT), the ICE August Brent crude futures contract was down $1.14/b (1.55%) at $72.45/b, from $73.59/b at the July 16 close.


** Front month August-September jet fuel/kerosene timespread was pegged at minus 22 cents/b at 0200 GMT July 19, narrowing 3 cents/b from the Asian close on July 16, S&P Global Platts data showed.

** The FOB Singapore jet fuel/kerosene cash differential extended declines and ended the week at minus 42 cents/b to Mean of Platts Singapore jet fuel/kerosene assessments on July 16, falling 4 cents/b week on week, Platts data showed.

** Asia's aviation sector continues to brace against tough headwinds as the spike of COVID-19 infections in the region dims travel outlook, prompting lockdowns across many countries.

** The bearish situation was also seen in Japan, where industry sources said the the COVID-19 state of emergency measures in Tokyo would have a significant impact on jet fuel demand for summer travel. "Domestic travel demand usually sees an uplift during the peak summer travel season in Japan; however, Japan just announced a state of emergency in the greater Tokyo area due to rising COVID-19 cases, and the new measure will have a big impact on domestic travel as 10% of the population of Japan resides in Tokyo," a source with a Japanese airline said, adding that flight capacity in Japan will likely remain low, with little upside before 2022.

** The Q4 2021-Q1 2022 jet fuel/kerosene swap spread, an indication of near-term sentiment, averaged plus 52 cents/b over July 12-16, widening 14 cents/b from an average of plus 38 cents/b the week before.


** The August-September gasoil market structure was pegged at plus 7 cents/b at 0200 GMT July 19, steady from the 0830 GMT Asian close on July 16, Platts data showed.

** The July Exchange of Futures for Swaps, or EFS, spread was pegged at minus $6.00/mt at 0200 GMT July 19, narrowing from minus $6.24/mt at the July 16 Asian close, Platts data showed.

** The Asian gasoil market may see a measure of support this week, with some traders saying that the complex could be shifting to firmer ground on a combination of factors. "There are expectations that it's going to be a tighter market for gasoil going forward. We have news that the Chinese have very low export volumes [of gasoil], Japan's exports are also lower, [South Korea's] GS Caltex has so far only shown two spot cargoes of gasoil for August loading and the Taiwanese have not shown any spot cargoes yet," a trader said, adding that while demand is not strong, at the same time "there are also not a lot of molecules being seen in the physical pool."

** In addition, a marginally open arbitrage to send Asian gasoil barrels to the West may lend further support to the market. The front month Exchange of Futures for Swaps, or EFS spread, is currently at the lowest it has been in a month, and this, together with lower freight rates, could help open East-West arbitrage lanes which have been closed for an extended period of time.

** The Q4 2021-Q1 2022 gasoil swap spread -- an indication of near-term sentiment -- averaged plus 96 cents/b over July 12-16, widening 4 cents/b from the 92 cents/b average the week before.