Asia-US jet fuel flows improve on rising air travel, face freight-related headwinds

Flows of jet fuel exports from East Asia to the US have been on the rise over the last few months as airlines step up flights to meet growing travel demand amid easing of border restrictions, but market participants cautioned that escalating freight rates in recent weeks were putting a dent on arbitrage economics.

So far in April, 200,000 mt of jet fuel loadings with options to deliver into Europe or US have been fixed, market participants said. Volumes were lower compared with March, when jet fuel loadings from Northeast Asia and Singapore, with options for delivery in USWC, totaled more than 400,000 mt, up by a third compared with February.

According to shipping sources, demand for moving diesel and gasoline to the US has elevated freight, which has risen by more than 47% so far in April for Medium Range tankers. This means that it will cost more than $80/mt to move a 35,000-mt jet fuel cargo from South Korea to the USWC on an MR, according to S&P Global Commodity Insights data.

As of now, there is no surge in shipments to the US and South America from Northeast Asia, but demand may pick up in the coming weeks, another broker said. He pointed out that the increase in exports last month by one-third translates into two or three additional cargoes of 35,000 mt each, which is not huge.

"The arbitrage to move jet fuel from east Asia to America is open but so far not many cargoes have gone," said an executive with a Singapore-based oil tankers brokerage.

Latest refined product arbitrage calculations released April 21 from S&P Global's Platts Analytics for jet fuel flows between South Korea-USWC showed that the arbitrage was open at an incentive of plus $6.10/b. This was based on a $21.94/b differential between Los Angeles pipeline and FOB South Korea jet fuel prices, $8.95/b freight costs and a $6.88/b market structure in the Los Angeles jet swaps market.

Arbitrage calculations for the South Korea-US west coast route were not available April 22 due to a holiday.

Still, more volumes may be covered with tonnage later this week, the executive in Singapore said. For the first time since the pandemic began, Americans are now spending more on air ticket purchases than three years ago, he said.

The International Air Transport Association said in its latest Air Passenger Traffic report that North American carriers saw a 237% year-on-year rise in international passenger markets in February. Meanwhile, domestic air passenger traffic -- measured in revenue passenger kilometers -- jumped 113% on the year in February, up from a 98% rise in January.

There were also opportunities for shipment of small volumes of jet fuel from the Red Sea region to the US Gulf or Atlantic coast, shipping sources said. ExxonMobil has a deal to load a 40,000 mt jet fuel cargo from Yanbu, with options to deliver in the Carribean, US Atlantic, Gulf or European coast, said a broker tracking the deal. ExxonMobil executives could not be reached for comment.

While it was not viable to move jet fuel from Red Sea ports to USWC, one tanker broker said that it was possible to move to the Atlantic Coast, citing the sharp rise in USAC jet fuel prices as one of the possible reasons for the trade opportunity.

Rising freight sours arbitrage

The spike in freight rates has, however, worked to dampen sentiment in the jet fuel/kerosene spot market, with traders saying that arbitrage economics for the trans-Pacific route have worsened. S&P Global assessed the freight rate for a vessel carrying a 30,000 mt cargo on the South Korea-US West Coast route at $95.83/mt April 25, up $2.50/mt from the previous session, and up $25.83/mt, or 36.9%, from a week ago.

"Heard US arb worsened... it's quite a fast drop," a regional trader said, in reference to the rapid weakening in the Asian jet fuel complex since late last week.

Another source agreed, saying that "it makes sense" that the market has eased, "since freight to USWC is rocketing".

There were no bids for ships by transpacific charterers, a shipping source in the US said late April 22. There are no charterers seeking tonnage on the South Korea-USWC route unless the freight goes lower and no ships either if it does not go higher, the source said.

While there was some interest among several participants in cobbling together barrels for larger shipments, participants said freight costs were proving difficult to overcome.

"There's interest to piece together [barrels] for LR shipments ... those who need, might pay more. But freight is crazy," a Singapore-based trader said.

At the Asian close April 25, the Platts FOB Singapore jet fuel/kerosene cash differential was assessed at plus $1.28/b to Mean of Platts Singapore jet fuel/kerosene assessment, down $1.17/b, or 47.76%, from a week ago, S&P Global data showed.