By Felicia Loo and James Dennis
SINGAPORE (ICIS)--Jet kerosene prices in Asia may strengthen in tandem with Chinese import demand, as China Aviation Oil (CAO) gears up its buying needs ahead of the Lunar New Year in January next year, traders said on Tuesday.
Asia’s jet kerosene prices rose by $4.15/bbl (€3.07/bbl) in the week ended 26 November to $125.67-126.07/bbl FOB (free on board) Singapore, according to ICIS.
The market has been buoyed by firmer crude values and recent cuts in Asian refinery run rates as a result of poor margins.
“Chinese jet fuel demand is improving. They are buying [jet fuel] for increased air travel for the holidays,” said one northeast Asian trader, referring to the Lunar New Year.
CAO has bought six cargoes of jet kerosene for delivery into China from December to January, boosting demand for aviation fuel in the region, according to traders.
The company is the largest physical jet fuel trader in the Asia-Pacific region and the key supplier of imported jet fuel to the civil aviation industry in China.
CAO bought four 240,000-300,000-barrel cargoes of jet kerosene for delivery to Shanghai and two similar-sized cargoes for delivery to Huangpu in southern China, traders said.
One cargo will delivered in December, while the remainder in January, the traders said.
Supply wise, the Asian market remained reasonably well balanced. Supply has tightened as a result of reduced refinery production of jet kerosene in northeast Asia as refiners switch to maximising their heating kerosene production.
South Korean export-oriented refineries continued to concentrate on exporting heating kerosene rather than jet. However, demand for heating kerosene imports from Japan was muted amid competitive domestic heating kerosene prices.
“The [heating oil] inventory is a little higher,” said another trader.
Demand for imports of jet kerosene from Japanese refiners was also somewhat muted, with domestic refiners still able to cover their local demand.
However, forecasts of colder winter weather were thought likely to both boost demand and prices for heating kerosene. It is also expected to raise buying interest for imported jet from Japan, with refiners expected to further maximise their heating kerosene output.
“The market has got to wait a while to see the price spiking up,” the trader said.
Meanwhile, supplies of jet kerosene in southeast Asia have also been cut in response to the negative regrade. The regrade, which is the differential between kerosene and gasoil swaps, stood at 60 cents/bbl in the negative territory.
Traditionally, kerosene trades at a premium to gasoil, but demand for gasoil has recently outpaced that for kerosene, driving kerosene values lower.
The arbitrage window for the shipment of cargoes from Asia to the US West Coast and Europe remained closed.
($1 = €0.74)
Read John Richardson and Malini Hariharan’s blog – Asian Chemical Connections