Cosmo closure, European maintenance to boost Asia jet fuel margins
* Jet fuel margins touched five-month high in August
* Japanese refiners switching to kerosene production
* Closure of Cosmo Oil refinery could hike imports
* Europe demand could rise on refinery maintenance
By Jessica Jaganathan
SINGAPORE, Aug 26 (Reuters) - The closure of a Cosmo Oil Co refinery and European maintenance schedules will give an extra boost to Asian jet fuel margins this year as Japanese refiners make their usual fourth-quarter shift to produce more kerosene during winter.
This could provide a bright spot for Asian refiners, although airlines' earnings could be hit should underlying crude prices hold at current levels or go higher, sources said.
Japanese refiners typically adjust their yields of middle distillates in winter to produce more kerosene - used in Japan to heat homes and businesses - and less of diesel and jet fuel.
This year's shift is already taking place, traders said, and comes just a month after Cosmo Oil permanently shut its 140,000-barrels-per-day (bpd) Sakaide refinery in western Japan.
The shutdown has removed at least 21,000 bpd of jet fuel and kerosene from the domestic market this year, and along with the change in product yields, will likely increase Japan's imports of jet fuel, industry sources said.
Jet fuel margins have averaged $17.79 a barrel so far this year and touched a five-month high in August. The margins also dropped to a more than two-year low of $13.68 in late April on weak global demand.
Japan's kerosene production more than doubled to 286,000 bpd in the week to Aug. 17 compared with the previous week, while jet fuel output slipped about 16 percent to 265,000 bpd and diesel about 4 percent to 810,000 bpd, according to latest data from the Petroleum Association of Japan.
Already, Japan's biggest refiner, JX Nippon Oil & Energy Corp, has expanded storage capacity for kerosene this year, industry sources said, although this could not be confirmed and details were not clear.
Japan's trading houses and refineries are also starting to stockpile jet fuel in neighbouring South Korea, traders said.
"Actually, the stockpiling is starting later this year due to a recent heat-wave in the country, but, yes, companies are starting to do it," a source with a Japanese refiner said.
Japan is expected to see mostly average to warmer weather from September to November, but refiners and traders do not want to be caught short should the weather turn cold suddenly, the source added.
At the same time, South Korea's refiners may curb jet fuel exports in the fourth quarter, traders said, further limiting Asian supplies. Kerosene is also used as a heating fuel during winter in South Korea.
EUROPE DEMAND & AIR TRAVEL
Several refineries in Europe are expected to undergo maintenance in September to early November, which could pull some Asian jet fuel cargoes that direction, further supporting margins, traders said.
The European refineries are expected to be back from maintenance before the end of the year, however, and once Saudi Aramco Total Refining and Petrochemicals Co's (SATORP) new Jubail refinery is operational it will likely start to export jet fuel to Europe as well.
A pick up in air travel, with the fourth quarter traditionally being the peak season due to Christmas holidays, could also boost jet fuel margins, industry sources said.
Airlines are expected to fill a record 80.3 percent of seats and move an unprecedented 3.13 billion passengers in 2013, up from 79.2 percent and 2.98 billion last year, according to the International Air Transport Association.
With many airlines considered as not having hedged adequately against spiralling fuel costs, any increase in jet fuel prices could hurt bottom lines, industry sources said. (Editing by Tom Hogue)
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