Asian jet fuel discounts slip to 9-yr seasonal low as supply swells

SINGAPORE,  (Reuters) - Asian jet fuel price discounts stand at their lowest December levels in nine years as a supply glut offsets consumption even as the region’s aviation sector booms.

The slump is a mirror image of the steep gains Asian aviation fuel price differentials saw in the first quarter of this year. Then, tight supply lifted them to their highest seasonal levels in a decade.

The cash differentials for jet fuel in the Asian trading hub of Singapore were at a discount of $1.06 a barrel below benchmark quotes on Monday JET-SIN-DIF, the weakest for this time of year since 2009, according to Refinitiv Eikon data.

Cash differentials represent the price buyers are prepared to pay for fuel over or below benchmark values published daily by price reporting agencies.

“Clearly the physical market does not believe that the high prices of jet paper (contracts) are justified,” said Sukrit Vijayakar, director of energy consultancy Trifecta. “That is what is causing the weakness in the cash differentials.”

The weakness also comes as winter in the northern hemisphere has seen a mild start: The outlook is largely for an unusually mild season because of an El Nino weather pattern. That’s especially the case in Japan, where kerosene - almost identical to jet fuel - is commonly used for heating.

The low kerosene consumption and high yields for churning out jet fuel are luring refiners to pump out more of the latter, market sources said, weighing on the price traders are willing to buy it for.

And the low cash prices are starting to weigh on refinery margins, traders said.

Refining margins, also known as cracks, for jet fuel were at $15.66 a barrel over Dubai crude during Asian trading hours on Monday - down 19 percent in the last four weeks.

Despite that, jet cracks remain comparatively high - the peak of $19.34 a barrel on Nov. 15 was a near four-year high - and seasonally adjusted refinery cracks for jet fuel are still at their strongest levels for this time of the year since 2014.

“Refiners can take comfort from the fact that aviation demand is really good...Jet cracks are very high,” said Vijayakar.

Reporting by Koustav Samanta; Editing by Henning Gloystein and Kenneth Maxwell

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