November 7, 2019 / 7:11 AM / 14 days ago

Winter bonus for jet fuel buyers as spot discounts at widest since June

SINGAPORE (Reuters) - Asian jet fuel buyers are getting the biggest cash discounts in nearly five months as the differentials are weighed down by plentiful supplies in the region and muted demand from the aviation sector.

FILE PHOTO: A technician attaches a jet fuel supply pipe to an outlet in the tarmac at Changi airport in Singapore in this May 7, 2008. REUTERS/Vivek Prakash

Cash discounts for jet fuel JET-SIN-DIF were at 30 cents per barrel to Singapore quotes on Wednesday, levels not seen since June.

The differentials now stand at their lowest levels for this time of the year since 2016, Refinitiv data showed.

There are ample supplies of jet fuel, while the aviation sector is taking a beating from slowing economic activity, and the China-U.S. tensions over trade have dampened air freight demand, trade sources said.

“I’m hearing China’s jet fuel exports for November and December would likely be on the higher side,” a Singapore-based trader said on Thursday, declining to be identified as he was not authorized to speak to media.

“That could put even more supply in the market.”

The return of some regional refineries from planned maintenance is expected to add to the supply glut in the near term, industry sources said.

Air passenger demand for Asia-Pacific airlines, which make up more than a third of the global aviation market, has been well below long-term average growth in recent months, data from the International Air Transport Association (IATA) shows.

“The overall passenger demand is ebbing... With economic growth slowing down, disposable income of people is also slowing down. So, discretionary travel is taking a hit,” said Sukrit Vijayakar, director of Indian energy consultancy Trifecta.

Graphic: Seasonal Singapore jet fuel cash differentials , here

The prompt-month time spread for aviation fuel, JETSGSPDMc0, which flipped into contango this week, traded at a discount of 11 cents a barrel on Wednesday.

In a contango market, where prompt prices are lower than those for future delivery, holders of physical barrels tend to store the product for sale later to secure higher prices.

Winter in the northern hemisphere, however, typically boosts demand for kerosene that belongs to the same grade of oil products as jet fuel and is widely used for heating in some parts of northeast east Asia, especially Japan.

“There’s an expectation that winter in north Asia this year will not bring extremely low temperatures, so that is not supporting kerosene stocking,” a trader said.

Temperatures in Tokyo are expected to stay mostly above-normal for the next couple of weeks, weather forecast models on Refinitiv showed.

Jet fuel refining margins, which also determine the profitability of kerosene JETSGCKMc1, dropped to $16.55 per barrel over Dubai crude on Wednesday, down from about $19 in September, the strongest in 10 months.

Reporting by Koustav Samanta; Editing by Florence Tan and Clarence Fernandez

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