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Middle East/India jet flows swing towards Asia as demand in Europe weakens

Jet fuel loadings from the Middle East and India have swung increasingly towards Asia in March amid seasonally poor demand in Europe, market sources said.

The shift was attributed to the Middle East market in particular seeking alternative outlets amid expectations that 1.7 million mt of jet was slated to arrive in Europe in March, markedly higher than the 1.3 million-1.5 million mt that typically arrives each month.

Jet fuel/kerosene flows to Europe spiked amid an earlier wide-open arbitrage window amid demand for its use as a blendstock for winter-specification diesel. This demand is expected to decline following the recent transition to non-winter specification product and prevailing weak downstream demand in the barge market, and much of the additional inflow into Europe in March is expected to end up in storage.

Market participants in Asia said the lack of outlets in Europe in March would likely result in cargoes heading towards Asia, exacerbating the weakness in the Asian jet fuel/kerosene spot market as it enters the shoulder season between winter and summer demand seasons. As economics typically favor moving jet fuel from the Middle East to the West, cargoes from the region rarely head to Asia.

However a downtrend in the forward market appeared to support the view that the economics have shifted, with the Q2/Q3 timespread down 34 cents/b Monday from last Friday at minus $1.10/b.

Among the fixtures illustrating this, Vitol has taken the Pro Sapphire to load 30,000 mt of jet fuel from Paradip to Singapore on March 27, while oil major Total had earlier taken the Palawan Star to load 60,000 mt from the Middle East to Singapore on March 13, shipping sources said.

They also noted that charterers had begun to add East/West port discharge options when loading jet from the Middle East or India.

Trafigura took the Energy Centurion to load 60,000 mt of jet from Vadinar on March 21, with options to discharge either in Singapore or the UK Continent, the sources said.

“The arbitrage economics are a bit worse so some have the flexibility to send it to the Far East now,” a Singapore-based trader said.

Traders typically consider the front-month ICE gasoil Exchange of Futures for Swaps and FOB Singapore regrade spread when mulling where to send cargoes loading from the Middle East and India. A deep negative EFS spread and FOB Singapore regrade spread favor moving such jet fuel cargoes to Europe. Both factors have narrowed during recent trading sessions, making flows to Europe less attractive.

Platts assessed the April ICE Gasoil EFS spread at minus $6.58/mt at the Asian close Monday, narrowing from minus $8.55/mt last week. The FOB Singapore regrade spread — a measure of the relative strength of jet fuel/kerosene to 10 ppm sulfur gasoil — was assessed at minus $1.22/b Monday, narrowing 52 cents/b week on week.

Still, some quarters of the market were skeptical the current interest in moving cargoes eastward out of the Middle East would continue for long.

“You would still send most of your barrels to the West,” said a third Singapore-based trader, noting that oil majors and traders continued to have the majority of their system commitments in Europe.

Still, the swing towards Asia is notable as it worsens the already stubborn supply glut in the region following underwhelming winter demand earlier in the year, market sources said.

Jet fuel/kerosene demand typically spikes over November-February as it is used as a heating oil in Northeast Asia, but demand was subdued this winter due to milder-than-average temperatures.
Source: Platts

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