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The European jet fuel market remains fairly stable this week.

Initially there were some concerns over jet fuel supply, with tight availability in the Mediterranean and the interruption of production at Lukoil’s Neftochim refinery in Bulgaria as its fuel sales licence had been revoked.

The 142,000 bbl/day refinery scaled down production significantly towards the end of July after customs officials revoked the licence. This came as Lukoil missed the 30 June deadline to implement measuring tools at its fuel warehouses so that product sent to buyers can be assessed for taxes payable.

However, Sofia administrative court has now decided that the fuel sale licence for the Lukoil Neftochim plant should be restored.

Meanwhile, sources say that Lukoil’s decreased production has not affected the northwest European jet fuel market, with many ascertaining that it has probably had a more localised impact.

It is thought that availability has not been affected as Bulgaria rarely exports to the northwest European market and usually exports product to local areas.

Sources add that there is no increased demand from Bulgaria for product. One source believes this is because it is logistically difficult to export into Bulgaria.

Overall, sources say both the barge and cargo jet fuel markets are very well balanced, with steady differentials over ICE gasoil speaking for themselves.

Cargo differentials have remained in the high August ICE gasoil plus $80s/tonne CIF throughout the week.

Barge material continues to trade in the high August ICE gasoil plus $70s/tonne FOB and low August ICE gasoil plus $80s/tonne FOB.

Some say that airline demand for jet fuel has increased slightly, however, others dispute this. One source says that currently airlines are usually seen selling excess volumes of jet fuel during open market trading, instead of buying further quantities.

Sources add that the current contango in the market is still not strong enough to encourage storage.

Open market trading

There were no barge trades during open market trading on Tuesday.

Fina bid for a 2,000-3,000 tonne parcel for 8-12 August at August ICE gasoil plus $79/tonne FOB FARAG.

Morgan Stanley bid for two 2,000 tonne parcels for 5-9 August and 8-12 August, both at August plus $79/tonne FOB FARAG.

Shell offered two 2,000-3,000 tonne parcels for 9-13 August and 10-14 August, both at August plus $82/tonne FOB ARAG.

BP offered three 2,000 tonne parcels: the first for 5-9 August at August plus $81/tonne FOB Rotterdam/Ghent; the second for 13-17 August at August plus $81/tonne FOB Rotterdam/Ghent; and the third for any five days during the five-to-fifteen day assessment window on a quotes related basis.

There were no cargo trades.

BP bid for a 30,000 tonne cargo for 21-25 August at August ICE gasoil plus $81/tonne CIF Hamble.

Vitol bid for a 30,000 tonne cargo for 13-17 August at August plus $84/tonne CIF Ghent and on a quotes related basis.

BP offered two 30,000 tonne cargoes: the first for 12-16 August at August plus $84/tonne CIF Le Havre; and the second for 17-21 August on a quotes related basis.

Shell offered a 30,000 tonne cargo for 12-16 August at August plus $87/tonne CIF Rotterdam.

($1=€0.70)

Jet fuel differentials to heating oil fluctuated in the US Gulf (USG) and New York Harbor (NYH) through the week ended 2 August, but ended with jet fuel prices in the two regions being only 2.25 cents/gal apart.

Sources said that jet fuel supplies on the NYH were more than ample, with plenty of material arriving through the Colonial Pipeline. This was reflected in the differentials to heating oil for both regions sliding to a weekly low on 2 August.

EIA DATA

US jet fuel production decreased by 4.9% in the week ended 22 July, while demand slipped by 1.1%, according to data from the US Energy Information Administration (EIA). Jet fuel demand outpaced production by 22,000 bbl/day, compared with excess production of 40,000 bbl/day in the previous week.

Inventories of distillate fuel, the basis for heating oil, increased by 3.3m bbl (2.2%) to 151.8m bbl. Production was down by 19,000 bbl/day (-0.4%), while demand rose by 56,000 bbl/day (1.6%). Output exceeded offtake by 1.10m bbl/day, down from the previous week’s 1.18m bbl/day.

Source: US Energy Information Administration (week ended 22 July)

NEWS

The Federal Aviation Administration (FAA) has issued more than 200 stop-work orders for airport construction projects and contracts around the country since its authorisation expired on 22 July. As no re-authorisation bill has been passed by Congress, construction workers, technicians, engineers, programme managers and planners across the country have been told not to report to work-sites and testing centres. In addition to the nearly 4,000 FAA employees who have been put on furlough, Associated General Contractors (AGC) estimates that 70,000 construction workers and workers in related fields have been affected.

Leaders of the US House of Representatives Transportation Committee have introduced a bill into Congress identifying the EU Emissions Trading Scheme (ETS) as being a unilateral and extra-territorial act that is inconsistent with long-established international aviation law. The International Air Transport Association (IATA) welcomed this action, saying it recognises that the International Civil Aviation Organization is the proper forum to address international aviation carbon emissions.

The Air Transport Association of America (ATA) said the EU ETS could cost the US airline industry more than $3.1bn between 2012 and year-end 2020, if the extra-territorial cap-and-trade requirements are implemented as planned next year.

   Asian jet-kerosene prices weakened towards the end of the reporting period following declines in crude which were triggered by concerns over the US economy following the release of weak manufacturing  and GDP data Prices had been briefly buoyed on Monday by the unscheduled shutdown of the 540,000 bbl/day Mailiao refinery in Taiwan following a fire. The refinery’s operator, Formosa Petrochemicals Corp (FPCC), has declared force majeure on its exports of distillates, gasoline and fuel oil. The move provided the most support to the gasoil market. However, there are expectations that the present well-supplied market for jet-kerosene could tighten if the shutdown is extended over a longer period.

The jet market was quiet this week, with the attention of market players focussed on the results of a purchase tender for August and September loading jet-kerosene from the key market player China Aviation Oil (CAO). No deals were heard done during open market trading. Physical differentials are assessed at around market quotes minus 60 cents/bbl FOB Singapore, unchanged on the previous week. Sellers attempted to raise their offers for jet cargoes during open market trading, following news of the Mailiao refinery shutdown, but buying ideas remained at around market quotes minus 80 cents/bbl to $1.00/bbl FOB Singapore.

Good refining margins continued to prompt refiners to maintain high distillate production. The forward market structure remains in a contango, reflecting weak prompt demand but the contango spread is too narrow to make storage an attractive proposition. The arbitrage windows for movements of jet-kerosene from Asia to Europe and the US are closed, traders said

Monthly data from International Air Transport Association (IATA) for June revealed both passenger and freight air traffic continues to be negatively impacted by the effects of the earthquake and tsunami in Japan and tighter economic conditions, particularly in China. IATA said international air travel in Asia in June grew by 3.3% year on year, which was half of the global average. The weakness in Japan’s international market reduced the region’s growth by 0.5%. Asia Pacific carriers recorded a load factor of 76.9%, which is 2.1% below the global average.

Demand in the Japanese domestic market in June was some 24.6% lower than a year earlier.  However, it was still stronger than the 27.8% year-on-year fall in Japan’s domestic air traffic recorded for May.

In regards to the air freight market, airlines in the Asia Pacific that account for 40.5% of the global market share, recorded a 5.8% year on year decline in traffic which was the largest of any region. This was mainly attributed to the disruption in supply chains for the electronics and auto industries in the wake of the tsunami and earthquake in Japan and slower economic growth in China. However, the Asia Pacific region still showed the highest load factors of 58.6%, which is well ahead of the 45.7% industry average for the month.

Tenders

China Aviation Oil (CAO) bought as much as 1.2m bbl of jet-kerosene for August and September loading via its recent tender at around Singapore market quotes minus 70-80 cents/bbl FOB Asia. The CAO tender had requested one 240-300,000 bbl cargo for loading on 21-31 August FOB Asia and three 240,000-300,000 bbl September-loading cargoes on a FOB Asia basis. The loading dates for the three cargoes are 1-10 September, 11-20 September and 21-30 September. In its last term purchase tender, CAO bought 1.2m bbl of jet kerosene for delivery at the end of July and August at a softer price of around Singapore market quotes minus 75-80 cents/bbl FOB Asia.

Inventory data

The latest data for the week ended 27 July revealed that Singapore onshore middle distillate stocks, including diesel and jet-kerosene, stood at a four-week low of 14.525m bbl, down by 1.086m bbl on the previous week. Stocks hit a seven-and-a-half-month high three weeks ago.

The Petroleum Association of Japan’s (PAJ) inventory data for the week ended 23 July revealed that stocks of jet-kerosene in Japan totalled some 815,100 kilolitres (kl), up by 41,585 kl on the previous week. Stocks of heating kerosene in Japan totalled some 2.54m kl, up by 147,914 kl on the previous week.

Open market trading

There were no deals done during open market trading in Singapore over the reporting period.

On 2 August, there was one offer and two bids during open market trading.

Shell offered 100,000 bbl for loading 17-21 August at market quotes minus 10 cents/bbl FOB Singapore.

Vitol bid for 250,000 bbl for 28 August-1 September loading at market quotes minus 80 cents/bbl FOB Singapore.

Hin Leong bid for 100,000 bbl for 22-26 August loading at market quotes minus $1.00/bbl FOB Singapore.

Paper market

On 2 August, balance August kerosene swaps were assessed at $131.15/bbl FOB Singapore. September kerosene swaps were assessed at $131.60/bbl FOB Singapore.

The balance August regrade was assessed at $1.80/bbl, up by 20 cents/bbl on the previous week. The regrade is the differential between gasoil and jet-kerosene prices.

The balance August kerosene-Dubai crack was assessed at around $20.50/bbl, up by $1.20/bbl from a week ago.

1 kilolitre = 6.29 bbl