By Koustav Samanta
SINGAPORE (Reuters) – Asian jet fuel is at its widest discount on record for this time of the year as supplies surge, with a relatively warm winter keeping a lid on demand for kerosene, a related heating fuel.
Cash differentials for jet fuel cargoes in Asian trading hub Singapore were at a discount of $1.34 a barrel to benchmark quotes on Monday <JET-SIN-DIF>, putting them at their weakest for January in Refinitiv Eikon data that stretches back to 1998. For graphic on Singapore jet fuel cash differentials, click https://tmsnrt.rs/2SCIEcC
Jet cash differentials were also at their lowest since August 2015 on a daily outright basis, with the discounts having more than quadrupled over the last two months.
Unusually weak demand this winter for heating kerosene, a product only slightly different from jet fuel, is the main factor pulling down prices, trade sources said.
“North Asia especially relies heavily on jet for heating kerosene. But temperatures are warmer and not so cold to create a spike in kerosene demand,” a Singapore-based trader said.
The North Asia winter has not yet brought any prolonged cold spells, with temperatures staying mostly near or above average across the region.
Temperatures in Tokyo, Beijing and Shanghai were expected to remain mostly warmer-than-usual for the next couple of weeks, according to a 15-day weather forecast on Refinitiv Eikon.
Meanwhile, a relatively stronger regrade, the price spread between jet and gasoil, was encouraging refiners to keep producing extra barrels of the aviation fuel despite the discounts at which it is sold.
Singapore refining margins for jet fuel <JETSGCKMc1> stand at about 80 cents above those for gasoil <GO10SGCKMc1>, mostly due to demand from Asia’s booming aviation sector, making it attractive to continue to churn out jet.
“Jet prices are extremely high in relation to closely related products,” said Sukrit Vijayakar, director of energy consultancy Trifecta.
The regrade <JETREGSGMc1> for February were at $1.45 a barrel on Monday, while for March it was at $1.43 per barrel.
Relief may come from a pick-up in jet fuel consumption closer to February.
“It’ll be important how fast the aviation travelling demand can pick up as we’re having another round of festive season coming up in the Chinese New Year next month, which may give some support,” a trader said.
Chinese New Year, known as the Lunar New Year in many parts of Asia, falls on Feb. 5-6 this year, and many countries will see high volumes of holiday traffic during that week.
For graphic on Singapore jet fuel cash differentials png, click https://tmsnrt.rs/2SCPzCC
(Reporting by Koustav Samanta; Editing by Henning Gloystein and Tom Hogue)