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Asia jet fuel discount to diesel narrowest in 7 months, refiners may mull output switch

Asian jet fuel’s price discount to diesel was at its narrowest in seven months on Tuesday as supply of the industrial fuel rose despite a slow demand recovery in some regions, according to Refinitiv data and industry sources.

The spread between jet fuel and gasoil with 10ppm sulphur, also known as regrade, traded at around minus $3.60 a barrel at midday Asian trade on Tuesday, the narrowest since early April, the data showed.

A narrower spread typically encourages refiners to produce more jet fuel at the expense of diesel, which could quickly tighten supplies and support prices again as global inventories remain low.

“As refiners focus on boosting diesel/gasoil supply and push for more exports to capture the stronger margins in the earlier few months, differentials have narrowed from start of November,” said Daphne Ho, a senior oil analyst at Wood Mackenzie.

Jet fuel was supported by a slower pace of increase in export volume from Northeast Asian refiners in December, while Japan will ramp up kerosene imports for heating ahead of winter, she added.

Two North Asian refining sources said their refineries could switch to producing more jet fuel soon to meet Lunar New Year demand. A Japanese refining source said they have been maximising kerosene production since November.

The sources declined to be named because they are not authorised to speak to the media.

The regrade has widened since March, stretching to its widest ever in October at around minus $10 a barrel, as global inventories fell to record lows on robust demand and disruption in Russian supplies following the Ukraine war, spurring refiners to boost diesel output.

Higher diesel output from Asian refiners and a jump in Chinese exports eased tight supplies in Asia, while demand in one key importing country Australia softened after floods hit mining activities and reduced diesel demand, traders said.

China’s gasoil exports may rise to between 2 million and 2.7 million tonnes in December, two China-based trade sources said. Exports in October were at 1.06 million tonnes, China customs data showed.

Meanwhile, opportunities to ship gasoil to Europe have been limited as the prompt exchange of futures for swaps (EFS) LGOAEFSMc1 between Europe and Asia has narrowed from around minus $150 a tonne to minus $80 a tonne in the past two weeks.

Easing tight supplies and limited arbitrage opportunities have weighed on cash premiums for 10 ppm gasoil GO10-SIN-DIF and refining margins GO10SGCKMc1 for the product in Asia.

“A premium of $1 a barrel or a discount of $1 a barrel is really not strong for December (gasoil) cargoes loading from South Korea, compared with $3-$4 a barrel for November-loading which means the cargoes are not as difficult to hunt for,” said a Singapore-based trader.
Source: Reuters (Reporting by Trixie Yap; Editing by Devika Syamnath)

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