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Singapore — The arrival of hurricane season in the US has injected some much needed fresh support for Asia's transportation fuels markets, as crack spreads and cash differentials receive a boost in light of persistently lagging fundamentals.

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On the gasoline front, the FOB Singapore 92 RON gasoline crack spread against front-month ICE Brent crude futures jumped to a three-month high of $4.31/b at the Asian close on Sept 15, last higher on June 24 at $4.83/b, Platts data showed.

For gasoline, the strength comes, in part, from the steady US RBOB/Brent crack, which has gained positive momentum following a string of storms over the past few weeks that has forced US refiners to shutter plants. Asian gasoline crack spreads closely trace directional moves in the US RBOB/Brent crack, with bullishness from the latter known to inject support in the former.

At 0230 GMT in Asia Sept. 16, the front month US RBOB/Brent crack was marginally higher at $6.95/b from the Sept. 15 close of $6.92/b. Prior to the onslaught of Hurricane Laura last month, the US RBOB/Brent crack stood at $7.78/b, before surging to a five-month high of $12.02/b on August 25. The crack stood at $6/b on Sept. 11 before jumping to $7.08/b on Sept. 14 just as Hurricane Sally became a concern for the US markets.

US gasoline stocks in the week ended Sept. 4 totaled 231.905 million barrels, following five straight weeks of drawdown, data from the US Energy Information administration showed. US gasoline inventories have largely normalized across much of the US amid sustained lower refinery runs this summer, with the Midwest and Atlantic Coast inventories showing growing deficits to the five-year average in recent weeks, Platts reported earlier.

Over in the Asian middle distillate markets, traders also said the impact of the storm could have a ripple effect.

"It is possible that there could be a knock-on effect from the storms on gasoil -- if the US is unable to send gasoil to Europe, then Europe will have to pull volumes from somewhere else, such as the Middle East," a Singapore-based gasoil trader said.

"More than 50% of refineries are located at the US Gulf Coast, so naturally markets become nervous when there is a big hurricane. Some refineries had previously shut down or reduce runs due to storm Laura and Marco," a Singapore-based refining source added.

Platts had assessed the FOB Singapore 10 ppm sulfur physical gasoil crack to front month cash Dubai at $3.22/b at the Sept. 15 Asian close, up 11% from a week ago when it was assessed at $2.89/b on Sept. 8. The FOB Singapore jet fuel/kerosene cash differential was assessed at a discount of $1.22/b to the Mean of Platts Singapore jet fuel/kerosene assessments on Sept 15, marking a 7-cent/b uptick week on week, Platts data showed.

On that note, the spot arbitrage between South Korea and the USWC remains wide open on paper and trade flows have picked up momentum over the last few months, S&P Global Platts Analytics reported earlier.

The latest -- Hurricane Sally -- has already forced the 255,600 b/d Phillips 66 Alliance refinery in Belle Chasse, Louisiana, to shut, although an eastward track in the storm's path means that the region is no longer expected to feel much of an impact. Other refineries more directly in the storm's path were operating normally.

Sally comes just two weeks after the arrival of the stronger category four Hurricane Laura, which had forced plants in Texas and Louisiana to shut, affecting some 2.23 million b/d of refining capacity, Platts reported previously.


But while crack spreads have received a near-term boost, fundamentals in Asia are still weak, underpinned by a fragile demand recovery and heavy regional supply.

A ballooning supply of Chinese gasoline has weighed on fundamentals as exports have been rising steadily since June. Gasoline outflows from the Asian giant remain heavy at an estimated 1.4 million to 1.5 million mt in both August and September

Likewise, Asia's gasoil market participants expect China to have exported around 1.8 million mt of gasoil in August, with estimates for September and October exports seen progressively higher at under 2 million mt each month.

Against this backdrop, a rising number of second-wave coronavirus cases have also stalled demand-side recovery. South Korea, Vietnam, Japan and even Australia and New Zealand have seen driving activity fall in August, due to a new slate of movement restrictions being re-imposed.

On the aviation front, fundamentals remained bleak at best as air travel remained heavily curtailed and demand having trickled to a drip.

"The aviation industry is going through the most devastating crisis it has ever experienced ... the global financial crisis in 2009 was pretty tough. But that was a blip [when compared with this]," Robert Boyd, assistant director for aviation environment at the International Air Transport Association said on Sept. 15.

Boyd added that global revenue passenger kilometers, or RPKs, are not likely to recover to 2019 levels until about 2024, adding that a slightly disjointed response from different governments worldwide in opening up their borders has also been a setback.

"The industry is in a "very fragile financial state" with a record net loss of $84 billion likely this year", Boyd said.