Jet Fuel Market Strongest in Years as Frozen Asia Needs Heating

(Bloomberg) -- Asia’s icy winter just spawned Europe’s strongest jet fuel market in over three years.

The fuel’s premium to diesel, the most-watched measure of market strength, jumped to $2.59 a barrel in Europe on Friday, the highest since December 2014. Freezing weather in Asia is drawing cargoes of kerosene, which is almost identical to jet fuel, from Middle East refineries that were already producing less than normal due to maintenance. That, in turn, is poised to chop shipments to Europe by about a third this month, according to tanker tracking data compiled by Bloomberg.

“Asia has been drawing high supplies lately because of unusually cold weather,” said Ehsan Ul-Haq, director of crude oil and refined products at Resource Economist Ltd. in London. “This leads to the airlines in Europe fighting for the same barrel as the people in Asia, who are struggling to heat their homes.”

Japanese Buying

In outright terms, jet fuel actually weakened sharply over the past few weeks because, like every other petroleum product, it tracks crude. And Brent futures slumped between late January and early February. Traders tend to watch jet fuel’s price relative to diesel because refineries can sometimes tweak their operations to switch between the two, and diesel is the more widely traded, making it a key benchmark.

Japan’s imports of kerosene rose to a 14-year high last month due to cold weather. Sales rose 8.3 percent to a four-year high. Cold snaps in South Korea and China also boosted their imports of fuels including coal and gas.

The jet fuel market isn’t only being driven by cold weather. Air passenger traffic in Europe grew 8 percent in 2017, the fastest expansion in six years, according to a preliminary estimate from the International Air Transport Association.

Refinery Work

The rally’s also coincided with maintenance at the Satorp refinery, a joint venture between Saudi Aramco and Total SA which supplies Europe with jet fuel. The work was due to run until about Feb. 23. Deliveries of oil products to Europe are on course to drop about 30 percent this month to about 56,000 metric tons a day, tanker tracking compiled by Bloomberg shows.

Refineries are also churning out just about as much of the product as they can, according to London-based Energy Aspects Ltd. With the bulk of seasonal refinery maintenance still to come, that could keep the jet fuel market buoyed for several months to come.

“We think the current strength in jet markets is only the start, as Asian refinery maintenance season kicks off this month in South Korea, one month after works began in the Middle East, where key jet producers in Kuwait, Qatar and Saudi Arabia have come down for works,” the consultant said in a Feb. 8 research note. Global jet fuel/kerosene stockpiles will decline in 2018, “with steep stockdraws” in the first quarter, it said.

Pressure on the jet fuel supplies may continue as improving European economies could boost passenger travel, said Ul-Haq.

“Jet fuel prices normally increase in summer and gasoil in winter,” Steve Sawyer, head of refining at Facts Global Energy, said over the phone. “But now it’s the opposite. I believe this is a short term supply/demand issue, which should resolve itself in the next few weeks, when winter is over and seasonal refinery maintenance programs are over.”

--With assistance from Sherry Su and Rachel Graham

To contact the reporters on this story: Firat Kayakiran in London at fkayakiran@bloomberg.net, Bill Lehane in London at blehane@bloomberg.net.

To contact the editors responsible for this story: Alaric Nightingale at anightingal1@bloomberg.net, Brian Wingfield

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