Singapore — The FOB Singapore jet fuel/kerosene cash differential hit a nine-year low Tuesday, reflecting an Asian spot market buckling under the weight of surplus product.
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Register NowS&P Global Platts assessed the FOB Singapore jet fuel/kerosene spot differential at Mean of Platts Singapore jet fuel/kerosene assessments minus $1.55/b Tuesday. It was last lower on October 19, 2009 at MOPS jet fuel/kerosene assessments minus $1.60/b.
Market participants attributed the ready availability of spot supply as the chief reason behind the prolonged weakness in the market. While competition for limited barrels typically drives jet fuel/kerosene to an annual high during the winter heating months, importers have had no procurement issues this season.
In particular, a surge in Chinese jet fuel exports this year has exerted pressure on the spot market. Beijing awarded a combined 11.82 million mt in jet fuel export quotas to state-owned oil companies during its first round of 2019 allocations -- 4.47 million mt under the general trade route and 7.35 million mt under the more restrictive trade processing route.
This is a 31.9% year-on-year jump from volumes awarded during the first tranche of 2018 quotas.
"Yes, Chinese refineries are the reason why jet is plunging," said a source at a Singapore-based trader. "Buyers have no issues finding cargoes, it shouldn't be a problem," a Northeast Asian refiner said.
Market participants characterized the issue as largely supply-side, with demand from Japan -- the single largest regional consumer of kerosene as a heating oil -- and the aviation industry remaining firm this year.
"Actually demand is growing steadily, yet jet cargo supply is ample," a second Northeast Asian refiner said.
HIGH FREIGHT RATES RENDER USWC ARBITRAGE UNWORKABLE
Adding to this, a lack of available vessels in the overheated clean tanker market has also rendered flows to the US West Coast -- a structural arbitrage outlet for Northeast Asia -- unworkable.
The freight rate for MR vessels along the South Korea-US West Coast route continues to hover at around three-year highs, and was assessed at $1.45 million Tuesday ($48.33/mt). It was last higher on September 22, 2015 at $1.48 million ($49.33/mt).
"Arb is definitely closed, at least on MR vessels," said a second Singapore-based trader.
The bearish sentiment was also reflected in the derivatives market that remains deep in contango. Prompt February/March Singapore jet fuel/kerosene timespread was assessed at minus 41 cents/b at the Asian close Tuesday, down 1 cent/b day on day.
Further out, the Q2/Q3 spread stood at minus 78 cents/b Tuesday, also down 1 cent/b day on day.
--Zameer Yusof, zameer.yusof@spglobal.com
--Jin Ming Lim, jinming.lim@spglobal.com
--Edited by Irene Tang, irene.tang@spglobal.com