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Platts Jet Fuel

A closer look at Platts jet fuel coverage

Analysis: South Korea/US West Coast jet arbitrage active, as US stocks tighten

New York — Tightening US jet inventories have rallied prices and in doing so, opened the arbitrage for Asian cargoes into the US West Coast, where refinery troubles persist.

US Energy Information Administration oil data released Wednesday showed stocks on the USWC fell nearly 900,000 barrels to just 7.96 million barrels for the week ended May 3, the tightest the region has been since November 2016.

The latest draw puts USWC jet stocks at a more than 10% deficit to the five-year average of EIA data.

Flaring was reported during an attempted restart procedure at Valero's Benicia refinery in California early Tuesday, according to a state government filing.

Valero shut the refinery on March 25 after the detection of operational issues with its flue gas scrubber, which resulted in abnormal levels of emissions particulates, a Valero representative said.

This comes after a fire last week shut the coking unit at Phillips 66's 120,000 b/d Carson refinery near Los Angeles.

In the four weeks of April, PADD V, the West Coast, refineries ran at an average of 82.2% of available capacity, compared with 88.63% of capacity in April 2018. In the week ended April 12, USWC refineries ran at a mere 79.5% of capacity, the first time that weekly figure has been below 80% since the week ended November 4, 2016.

As stocks have fallen, Los Angeles pipeline jet fuel has rallied. S&P Global Platts assessed LA jet at NYMEX ULSD plus 32 cents/gal Tuesday, up from just 1.75 cents/gal a month ago. By this measure, LA jet was last any stronger in May 2015.

This strength has opened the door for South Korea barrels. Platts calculations show that delivered South Korean jet cargoes hold a $5-$6/b discount to LA pipeline barrels over a 10-day moving average. This suggests that West Coast buyers are likely to continue to import cargoes.

Platts cFlow trade-flow data showed Valero has placed the STI Topaz on subjects for loading a South Korean jet cargo on May 13, and Vitol is loading the Salamina on May 15 to also bring jet to the USWC.

ATLANTIC COAST ARBITRAGE CLOSED

Despite tight stocks on the US Atlantic Coast -- another big buyer of South Korean jet -- weaker prices have kept the arbitrage closed.

EIA data showed regional inventories dropped 409,000 barrels to 9.34 million barrels, the lowest in five weeks and a nearly 14% deficit to the five-year average.

Nevertheless, New York Harbor jet differentials have been slower to rally. Platts assessed the grade at NYMEX ULSD minus 2 cents/gal Tuesday, just slightly above the 30-day average.

Further, Platts calculations put delivered South Korea cargoes at a $3.30/b premium to New York Harbor cargoes, suggesting there is little incentive to bring in imports from Asia.

DESPITE WEST COAST WOES, USGC EXPORTS STRONG

Wednesday's EIA data showed total US jet stocks fell 1.2 million barrels to 39.72 million barrels for the week ended May 3. The last time they were reported lower was December 7, 2018, at 39 million barrels.

The stock draw came as jet fuel exports to Mexico, Canada, and other Latin American countries climbed 128,000 b/d to 271,000 b/d. That level marked a rebound from a four-week low the previous week, and was the highest since last week of December 2018.

The bulk of US jet exports come from the Gulf Coast, where benchmark differentials on the Colonial Pipeline were assessed at NYMEX June ULSD minus 7.30 cents/gal Tuesday, its strongest since March 28.

-- James Bambino, with Daron Jones in Houston, newsdesk@spglobal.com

-- Edited by Derek Sands, newsdesk@spglobal.com