Fewer jet fuel cargoes head around Cape of Good Hope than expected as contango narrows
Fewer March shipping fixtures carrying jet fuel have gone around the Cape of Good Hope than originally expected, according to data from S&P Global Platts trade flow software cFlow, on the back of a strengthening of the outright jet CIF NWE flat price spread.
While market sources had anticipated a number of cargoes due for March arrival into Northwest Europe going around the Cape, only one cargo has done so, cFlow showed. The STI Goal, heard to be carrying 90,000 mt of jet fuel, was seen in the Indian Ocean off the coast of Somalia Friday, cFlow showed, and poised to go around the African Continent.
Vessels typically go around Africa to allow market participants more time to sell product from tank or to delay arrivals in the expectation of more favorable market conditions further down the curve, particularly when there is a strong contango in the market.
However, the jet CIF NWE cargo outright front-month versus second-month contango narrowed over the past week, from minus $3/mt on February 21 to minus $1/mt Thursday.
“It doesn’t pay to go around the Cape,” one trader said Friday.
Jet fundamentals have continued to look weak, as high incoming arbitrage volumes weighed against a low demand environment in NWE. Jet swap differentials have been pressured downwards as a result, with the front-month versus second month differential swap spread widening to minus $5/mt Wednesday, the lowest since 31 October. However recent strength on the underlying prompt ICE low sulfur gasoil future spread has resulted in the strengthening of the jet outright structure.
The backwardated ICE LSGO prompt structure widened to $4.25/mt Thursday from $3.25/mt Wednesday with strength in the spread attributed by traders to less domestic supply of diesel due to refinery maintenance and arbitrages to Europe from the US Gulf Coast and Persian Gulf being effectively closed.
Also, a number of VLCCs carrying diesel from Asia are not expected to arrive until after the expiry of the March ICE LSGO contract on March 12.
Looking ahead, restocking is expected to take place in Germany, which could provide some support to ICE LSGO structure. In February, the German strategic stocks agency EBV issued tenders totaling 117,566 mt of ultra-low sulfur diesel and 23,234 mt of 50 ppm gasoil for delivery between March 1 and June 30. All these tenders closed Thursday.