SINGAPORE: Asian jet fuel's premium to gas oil surged to a six-week high on Wednesday, as players bet on weakness in the diesel market to widen the spread.
The May regrade rose 40 cents to $1.45 a barrel by 0830 GMT, and was bid/offered at $1.50/$1.60 a barrel after by 1130 GMT. The regrade has climbed by over $1.00 a barrel since the start of the month, in line with a sharp downturn in regional gas oil prices, traders said.
Fixed-price jet fuel swaps were also transacted at higher levels, with BP buying all 200,000 barrels of the May contract on offer during the pricing window for $138.60-$138.80 a barrel, up from a value of $137.93 in the previous session.
Gas oil's prompt crack was steady after hitting a near two-month low on Tuesday, but stayed below a premium of $20.00 a barrel to Dubai crude, as higher supplies in the region and weak Japanese demand weighed on sentiment, traders said.
The prompt diesel timespread moved closer towards parity at 4 cents a barrel, with the forward curve in contango up to the November/December contract.
"The market is still correcting, but if you look at the longer-term picture cracks are still relatively healthy," said a Singapore-based trader.
The front-month crack spread has fallen by over $4.00 a barrel since hitting a 30-month peak above $24.00 a barrel on April 11, but is still higher than 2010's peak of almost $15.00 a barrel.
Reflecting movements in the regrade, jet fuel's cash differential edged up, while those across all benchmark gas oil grades weakened on physical deals done at lower prices.
In the 10-ppm market, cargoes were also transacted at a lower premium of $2.70 a barrel, down from over $3.00 a barrel last week.
"Demand has not been good and it's not going to get much better in the next few months. US recovery, as well as global recovery, is being slowed with high oil prices," said Carl Larry, President of Oil Outlooks and Opinions in Houston.
Vitol was the dominant buyer of gas oil swaps during the pricing window for a second session, where it snapped up 150,000 barrels of May fixed-price swaps at $137.45-$137.50. The European trader also bought 250,000 barrels of 0.5 percent sulphur gas oil in the physical market from Totsa at a premium of 10 cents a barrel to Singapore spot quotes.
* SWAP SPREADS: The May/June timespread fell 3 cents to a backwardation of 4 cents a barrel, while the May regrade gained 45 cents to $1.45 a barrel.
* SWAPS OUTRIGHTS: The May and June gas oil swaps were assessed at $137.33 and $137.29 a barrel, up 45-48 cents, or 0.3-0.4 percent.
* CRACKS: Diesel cracks for May inched up 3 cents to $19.59 a barrel to Dubai crude, while May's jet fuel crack rose 43 cents to $21.04 a barrel.
* CASH DIFFERENTIALS: The differential premium for the 0.5 percent sulphur gas oil lost 8 cents to 12 cents, while the 0.25 percent sulphur grade slipped 10 cents to 95 cents a barrel. Diesel with 0.05 percent sulphur was weaker at $1.70 a barrel, also down 10 cents.
- Jet fuel differentials added 2 cents to a premium of 20 cents a barrel.
* PHYSICAL OUTRIGHTS: Benchmark diesel with a maximum sulphur content of 0.5 percent rose 37 cents to $137.44, while jet fuel prices added 83 cents to $138.95 a barrel.
* CASH TRADES: One jet fuel deal and three gas oil deal.
- BP bought two 100,000 barrels of jet fuel for May 16-20 lifting from Hin Leong at 20 cents a barrel above Singapore spot quotes.
- Reliance Industries sold one 150,000-barrel cargo each of 10-ppm cargoes to BP and Shell for May 12-16 delivery at a premium of $2.70 a barrel.
- Vitol bought 150,000 barrels of 0.5 percent sulphur gas oil for May 23-27 lifting from Totsa at 10 cents/barrel above Singapore spot quotes.
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