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Asian jet fuel braces for winter kerosene demand, gasoil choppy as South Korea supply rises

Singapore — The Asian jet fuel market may buoy higher this week as Japan is expected to start its kerosene stockpiling for winter heating demand in September, while the regional gasoil market readies itself for more supply from South Korea after it abolished its automotive tax relief last week.

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GASOIL VOLATILE AHEAD OF TURNAROUND SEASON

The Asian gasoil market is expected to be volatile this week, after South Korea abolished its automotive tax relief, leaving market participants expecting South Korea, the largest supplier of gasoil in East Asia, to ship out even more cargoes soon, trade sources said.

South Korea, who exports some 1.8 million-2 million mt of gasoil per month, is the largest supplier of the middle distillate in the world after Saudi Arabia.

"Demand [for gasoil cargoes in South Korea] is already very weak, the restoration of the automotive tax might make it worse", a Singapore-based trader said, adding that "North Asia is getting oversupplied, and people are looking for homes for the barrels."

At the Asian close Friday, the FOB Singapore gasoil cash differential was assessed at plus 27 cents/b to Mean of Platts Singapore gasoil assessment, marking a day-on-day dip of 4 cents/b.

The cash premium had dipped to as low as plus 15 cents/b on August 27, amid a slowdown in spot demand for physical barrels.

That said, the upcoming maintenance over September to October could be the turning point in the Singapore gasoil market, industry sources said.

"I don't see much demand in Asia currently, but in September-October, we might see lesser supply as a result of refinery turnarounds in the fourth-quarter, therefore I think potentially, trading activity will pick up in the second-half of September," a Singapore-based refining source said.

In the derivatives market, the front-month September/October timespread jumped 18 cents/b week on week to be assessed at plus 26 cents/b at Friday's Asian close.

Further out, the Q4/Q1 timespread was up 39 cents/b from the settle on August 26 to $1.09/b last Friday.

JET FUEL STEADY AHEAD OF JAPANESE KEROSENE STOCKPILING

The jet fuel/kerosene spot market sentiment is expected to hold steady next week, as ongoing turnarounds in the Middle East and South Korea continue to tighten the supply and demand fundamentals for the aviation fuel.

The market is likely to strengthen with Japan expected to begin building kerosene stockpiles in September.

According to the latest data from the Petroleum Association of Japan, the country's kerosene stockpiles stood at 14.20 million barrels in the week ended August 24 -- 6.4% higher year on year, based on Platts' calculations.

Platts assessed FOB Singapore jet fuel/kerosene cash differentials 4 cents/b lower day on day at plus 9 cents/b Friday -- the 11th straight session it has been trading at a premium to the Mean of Platts Singapore jet fuel/kerosene assessments.

Separately, traders will also continue monitoring developments in North Asia, particularly in the wake of Hengli Petrochemical selling its first-ever export jet fuel cargo out of its 20 million mt/year refinery in Liaoning, Dalian.

The sale was facilitated by China National Aviation Fuel, as Hengli does not possess the required certification to sell domestically in China, nor does it have an oil products export quota from China's Ministry of Commerce.

The China-flagged MR vessel Chang Hang Xian Feng, which loaded 39,000 mt of jet fuel from the Dalian facility, departed from Changxing Island on August 26 and is bound for South Korea, according to S&P Global Platts vessel-tracking software cFlow.

In the paper market, the front-month September/October jet fuel/kerosene timespread was recorded at plus 15 cents/b Friday, down 8 cents/b from last Monday August 26.

Further out, the Q4/Q1 timespread was up 47 cents/b to $1.02/b for the week ending August 23.

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

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

--Melvin Goh, melvin.goh@spglobal.com

--Edited by Norazlina Juma'at, norazlina.jumaat@spglobal.com