Asia's gas oil intermonth swaps spread fell to a 20-month low on Monday, hit by heavy selling and sluggish demand. Regrade, or jet-kerosene's premium to gas oil, strengthened as a result, with the August spread firming to $3.75 a barrel from $3.50 in early trade.
The levels were the widest since December 11, when regrade touched $4.30 a barrel. Gas oil's August/September spread widened to a discount of $1 a barrel from a contango of 45 cents on Friday, following BP's cash 50 ppm bid at a weak 80 cents a barrel.
The last trade for 50 ppm gas oil fetched a premium of $2.10 a barrel. Traders blamed poor Asian demand for the bearish market and Hin Leong's aggressive selling of gas oil swaps. By contrast, the jet-kerosene market was supported by arbitrage jet fuel shipments to Europe.
Around 80,000 tonnes of Middle East jet fuel set sail to Europe since Friday, adding to a historic flood of Europe-bound shipments of 530,000 tonnes from Asia for July/August lifting. Traders attributed thin supplies in Europe as the key factor, besides peak seasonal demand. Jet fuel supplies in Amsterdam-Rotterdam-Antwerp fell to 340,000 tonnes last week, a fifth below the 430,000 tonnes recorded on August 2 last year.
The arbitrage window continued to work to move Asian barrels westwards, traders said. This was helped by a slew of cash jet-kerosene deals done at weaker levels, helping to keep a wide West/East spread. Shell bought 100,000 barrels of jet fuel from Mercuria at $1.25 a barrel below the average prices from August 5 to August 31, for loading on August 19-23.
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