Bloated diesel supply narrows Asia regrade to lowest in seven months

Quantum Commodity Intelligence – The relative price of jet fuel to diesel narrowed to the lowest level since April on Tuesday as demand for kerosene increased alongside supply of diesel in the region, according to Quantum data.

Jet fuel swaps for December were pegged at $115.90/b by 1630 Singapore time, $3.40/b under 10ppm diesel and the lowest discount since April 5 and up from a $10/b spread seen just a few weeks ago.

The narrowing comes on softer diesel prices in the region, as new refineries in China and the Middle East boost supply of the road fuel amid lower-than-expected demand from Europe.

Warmer weather in Europe, a restart of French refineries and relatively high stocks has quelled fears of a diesel shortage there, leaving Asia relatively bloated and pricing close to arb economics heading west.

The price of diesel loaded out of Singapore for December was pegged at $65/mt below where low sulfur gasoil future swaps are for the same month and $56/mt below January LSGO.

That's $17/mt lower than just 10 days ago.

The narrowing of the differential, also comes as Chinese exporters ramp up exports over the northern hemisphere winter.

Chinese refiners have produced record amounts of diesel in September and October, and while diesel exports actually dropped 40% in October from September's high, that compared with a 6% fall in jet exports.

Despite that drop, international sales of diesel from China are still running at above 1 million mt a month, according to China Customs.

That has caused the relative price of physical diesel cargoes loading in Singapore versus Brent futures to fall $17/b in just six weeks to $35/b.

Meanwhile, a rise in kerosene demand for heating has seen refining margins for jet fuel fall just $3/b over the same time frame to $31.60/b.

In a sign of increasing demand, Japanese refiners have maximised output of kerosene and jet to nine-month highs in a seasonal trend as consumers stock up for heating purposes.