Cash differentials for jet fuel were at 15 cents a barrel to Singapore quotes on Tuesday, down from a 23 cent premium a day earlier.
The premium for jet fuel cargoes in the Asian trading hub of Singapore had risen to as high as 38 cents a barrel above benchmark quotes last week, taking the differentials to their strongest levels for July-August since 2013.
The differentials, which owe their recent strength to a short-term tightness in supply, however, are expected to weaken as late summer travel demand slumps in the coming weeks and refiners ramp up production levels, according to market watchers.
Asian refiners usually cut output during the second quarter for scheduled plant maintenance, while heavy demand for summer air travel provided a seasonal boost to the region's already thriving aviation market, trade sources said.
The August/September time spread narrowed on Tuesday to trade at a premium of 8 cents a barrel, compared with 12 cents on Monday.
Backwardation, when the front-month contract is more expensive than subsequent months, makes it uneconomical to store the product, resulting in a drawdown in inventories.
Refining margins, or cracks, for jet fuel climbed to $16.18 a barrel over Dubai crude during Asian trade, up from $16.09 per barrel a day earlier.
Meanwhile, cracks for 10ppm gasoil inched down 3 cents to $16.84 per barrel over Dubai crude.
Cash differentials for 10ppm gasoil were at a premium of 3 cents a barrel to Singapore quotes, compared with a narrow discount of 1 cent a barrel on Monday.
SINGAPORE CASH DEALS
- Two gasoil trades, one jet fuel deal
- Vitol sold 150,000 barrels of 10ppm gasoil to Unipec for Aug. 21-25 loading at parity to Singapore quotes.
- Singapore trader Hin Leong bought 150,000 barrels of 10ppm gasoil from Vitol for Aug. 21-25 loading at a discount of 10 cents a barrel to Singapore quotes.
- Hin Leong also bought 100,000 barrels of jet fuel from Freepoint for Sept. 1-5 loading at a premium of 10 cents a barrel to Singapore quotes.
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OTHER NEWS
- India has increased the cost estimate of a giant refinery and petrochemical project to be jointly built with Saudi Aramco and Abu Dhabi National Oil Co by more than 36%, after protests by farmers forced the relocation of the plant, four sources said.
The 1.2 million barrels-per-day (bpd) coastal refinery in the western state of Maharashtra is now expected to be built at Roha in the Raigad district, about 100 km (62 miles) south of Mumbai.
- Oil prices rose 1% on Tuesday as traders betting on falling prices bought back contracts to lock in profits after declines over the last three sessions due to escalating trade tensions between China and the United States.