European diesel price surge forces traders to pay up for Asian jet fuel
Quantum Commodity Intelligence – The difference in price between Asia February swaps and European March jet fuel swaps at 1630 Singapore time has blown out to the highest level in months this week as soaring diesel prices in Europe dragged jet cracks higher there, while in Asia demand for aviation fuel was more subdued.
February swaps basis FOB Singapore were valued at $103.70/b by 1630 Singapore time, a figure equivalent to $819.25/mt on a 7.9 density basis.
That was a $41/mt discount to where March swaps were pegged by brokers for CIF NWE cargoes – $1/mt wider on the day and one of the widest prints in months.
The discount of March swaps in Asia to April swaps in Europe widened more sharply - $4/mt on the day to $35/mt.
"There is not much jet around at all because refiners are all maxing diesel production," said one broker.
On the physical side, Shell's Singapore subsidiary was aggressively offering cargoes down in Singapore, while simultaneously bidding up volumes in the Middle East, meaning spot cargoes loading out of the Arab Gulf are now trading at a $2.50/b premium to Singapore versus parity just three weeks ago.
Europe is structurally short jet and typically imports around 2 million mt on average a month in normal years, mostly from the Middle East, with suppliers there using the Singapore quote for pricing.
Those term barrels have typically traded at $2-2.50/b over Singapore, loading from the Middle East, but spot prices out of the Middle East have not reached that level for at least a decade, with sources indicating a trader was likely using AG quotes to bring cargoes to Europe - notable in itself.
February paper jet cracks in Singapore have fallen $0.20/b since the start of the month, while March swaps in Europe have increased $0.30/b, widening the spread between the two regions.
European jet cracks have been hauled higher by a sharp spike in nearby diesel prices, with backwardation reaching near 15-year highs.
One source pegged imports of jet fuel into Europe at around 800,000 mt in February, slightly higher than the 700,000 mt seen in January, but down on December's level of 1 million mt.
February imports were going to be 1 million mt, but some cargoes from east of Suez were diverted trans-Atlantic to the US.