Asian Jet Fuel Differentials, at 10-Year High, to Stay Supported on Supply Limits


FEBRUARY 27, 2018

Singapore. Asian jet fuel differentials, which have surged to their highest since 2008, are likely to stay supported for most of the rest of the year as demand growth outpaces supply increases especially as more passengers take to the skies in the region.

Recent cold snaps in Japan and South Korea have spiked demand for kerosene for heating in North Asia this winter, pulling supply away from the pool of fuel available for jet fuel. Kerosene and jet fuel are similar types of middle distillate fuels and demand for one influences the market for the other.

Asian refiners are also set to enter their peak maintenance period which will also limit the amount of jet fuel available to the market.

Singapore jet fuel differentials, the premiums or discounts to benchmark prices, shot to a premium of $2 a barrel on Feb. 23 on expectations for further market tightness, the highest since May 20, 2008.

Expectations of higher demand growth than supply growth is driving the gains in the differentials.

Jet fuel demand in 2018 will increase by an average of 117,000 barrels per day (bpd) in 2018 versus a supply increase of only 102,000 bpd, according to Reuters calculations based on supply and demand balance data from consultants Energy Aspects published in their February middle distillates outlook report.

Jet fuel margins for the first two months of 2018 have averaged $15.35 a barrel, up from $12 in 2017 and $11 in 2016 during the same period, according to data on Thomson Reuters Eikon.

Even though the North Asian winter will end, air travel demand and the Asian refinery maintenance will support the market.

"Over 4.3 billion passengers are expected to travel by air [globally] in 2018, an increase of about 5.6 percent compared to 2017," said Albert Tjoeng, assistant director, corporate communications, Asia Pacific for International Air Transport Association (IATA).

"The industry fuel consumption is expected to grow to 92 billion gallons [2.2 billion barrels] in 2018 [compared to 88 billion gallons in 2017]," Tjoeng said.