4 Min Read
* BP ships jet fuel from U.S. West Coast to China
* Vitol ships jet fuel from Hawaii to Shanghai
* Rare reverse flow unlikely to last as U.S. stocks fall -sources
By Jessica Jaganathan
SINGAPORE, Nov 28 (Reuters) - At least two jet fuel cargoes are being shipped to China from the United States, reversing the usual direction of trade in the product, as U.S. refiners make use of cheap domestic crude oil from shale to ramp up runs for export.
Oil major BP is shipping jet fuel from the U.S. West Coast to China while oil trader Vitol is shipping the product from Hawaii to Shanghai, industry sources said. They declined to name the vessels carrying the cargoes.
Such shipments are very rare as jet fuel is normally shipped from Asia, which is usually over-supplied with middle distillates, to the United States.
Jet fuel shipments from Asia to the U.S. have slowed to 1 or 2 cargoes over the past two months from about 4 to 5 cargoes a month previously, traders said.
This is probably due to increased U.S. refinery run rates, while North Asian refiners have cut runs due to weak margins, they added.
They said the reverse flow is unlikely to continue over the next few weeks as U.S. distillates stocks fell to their lowest level for November since records began in 1982, which could spell trouble for the supply of widely-used heating oil, or gasoil, during the winter months.
Middle distillates include jet fuel and diesel. Refineries can usually choose to optimise production of one or the other to cater to demand. If heating oil demand rises, refiners will probably produce more gasoil, at the expense of jet fuel.
A trader familiar with the Chinese market said the shipments from the United States may also be partly due to cheap availability of vessels returning to Asia after making deliveries.
"There were probably a couple of very cheap back haul vessels that Vitol or BP took advantage of," the trader said.
BP is likely shipping the jet fuel cargo from its Cherry Point refinery in Washington state, an industry source said.
"I'm not surprised if the arbitrage this way works," a second Singapore-based industry source said.
U.S. distillates stocks have not been falling due to low production but because of increased exports as U.S. refiners seek to take advantage of good margins gained from increasing supplies of cheap domestic crude.
Export of refined products rose to an all time high of 3.39 million barrels per day (bpd) last week, which included sales abroad of 1.39 million bpd of distillates, a peak since the U.S. Energy Information Administration (EIA) began records for these fuels in 2010.
Thanks to the shale oil revolution, U.S. oil production unexpectedly reversed a long decline that started in the 1980s and began to grow by around 2010.
Separately, Chevron is shipping jet fuel from the U.S. West Coast either to Asia or further down the Pacific to Australia or New Zealand, industry sources said.
Further details of this shipment could not immediately be confirmed.
Chevron had tried to move a similar cargo from U.S. West Coast to New Zealand a few weeks ago but did not do so, a shipping source said.
"The U.S. West Coast to New Zealand route is more workable as New Zealand is normally supplied by Singapore, Japan or South Korea and the two routes are not that different," a Singapore-based trader said.
"When back haul freight is cheap and heating oil prices were weak, it can work."