European jet diffs fall to 2011 low on supply, Libya

LONDON, Sept 2 Fri Sep 2, 2011 10:34am EDT

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LONDON, Sept 2 (Reuters) - Spot differentials on jet fuel in Europe have fallen to a 2011 low this week due to the opening of the arbitrage window from Asia, the end of the summer holiday season in Europe and hopes that turmoil in Libya will come to an end, traders said.

Jet fuel JET-BD-ARA has been sold at premiums as low as $58 a tonne fob to benchmark ICE gasoil futures LGOc1 this week in the inland Amsterdam-Rotterdam-Antwerp area. The level is the lowest since December last year and is a fall from the July peak of above $90.

Traders cited a range of factors from a spike in expected inflows to Europe from Asia to the expected eventual end of the Libyan conflict.

"It is a combination of everything. The arbitrage from Asia cracked open, holidays are over and benchmark ICE (gasoil) has strengthened," a trader said.

"Libya is one reason as well. It's all speculation at this moment but NATO bombing will end eventually and it is moving towards that way."

In March, premiums on jet fuel shot up to above $95 a tonne on expectation for increases in demand from fighter jets ahead of the NATO bombing campaign in Libya. The level was the highest in 2-1/2 years, or since the collapse of Lehman Brothers in 2008.

NATO has not officially ended its air strike campaign against ousted Libyan leader Muammar Gaddafi. But six months after the escalation of violent protest into the civil war, Libya's National Transitional Council (NTC) has assumed the new leadership and been recognised internationally.

ICE gasoil prices, the benchmark for heating fuel, jet fuel and diesel, have risen about $56 from early August to about $942 a tonne on Friday due to healthy demand for diesel and an expected increase in heating oil ahead of winter in Europe.

The rise in ICE gasoil prices pressured jet fuel differentials, while differentials on diesel and heating have not fallen as sharply as jet fuel.

Traders also said the spot arbitrage to ship jet fuel from Asia to Europe opened up following the restart of a refinery in Taiwan, pulling down European jet fuel differentials.

Some traders said up to 2 million barrels of jet fuel, the largest volume in about 3-4 months, were expected to arrive in Europe mostly in late-September and early October. Ship fixtures are not yet confirmed.

"A lot more people are wiser now as to who is moving what to Northwest Europe. Lots of people are now offering jet into the Mediterranean," another trader said.

Late in August, Taiwan's Formosa Petrochemical Corp restarted one of the three crude distillation units (CDU) at its 540,000 barrels per day (bpd) refinery after it was completely shut following a fire at a secondary unit at the end of July. It may be able to resume oil product exports soon.

The refinery is the fifth largest in Asia and it is larger than Europe's largest refinery, Royal Dutch Shell's (RDSa.L) 412,000 bpd Pernis plant in the Netherlands. (Reporting by Ikuko Kurahone and Claire Milhench; editing by Keiron Henderson)

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