Asian jet fuel margin at 3-year high amid Japan, Korea cold snap

[SINGAPORE] Asian jet fuel margins are at their highest in more than two years as Japanese and South Koreans burn more kerosene to fend off the chill of another cold wave about to hit the region.

Japan and South Korea are unusual among fully industrialised countries, with relatively widespread use of kerosene as a heating fuel. Jet fuel and kerosene are closely related and belong to a grade of oil products called middle distillates, with jet fuel margins determining the profitability of both.

"The physical Asian jet fuel market remains supported in the wake of continuing cold weather in Japan as refiners maximise production of kerosene, used for heating in Japan, at the expense of jet fuel," said Sukrit Vijayakar, director of consultancy Trifecta Energy, in a daily research note.

As a result, Asia's jet fuel margins or cracks rose above US$16 per barrel of Dubai crude in late January, the highest seasonal value since 2015.

For all of January, the average crack value held around US$15 a barrel, about a quarter more than in the same month a year ago and more than 40 per cent higher than in January 2016.

In Japan, capital Tokyo has been hit by several cold snaps and even unusual snow falls this year, and more freezing weather is expected to arrive by next week, weather data in Thomson Reuters Eikon showed.

In South Korea, Seoul is also expected to see extreme cold weather next week, with temperatures possibly falling below minus 10 Celsius.

Temperatures are expected to turn towards a warmer seasonal norm by mid to late February.

This means two of the world's biggest cities are about to experience another cold wave. Beyond demand for kerosene, this has also pushed up Japan's and South Korea's imports of thermal coal and liquefied natural gas (LNG), which they also use as a heating fuel.

In the week ended Jan 27, Japan's kerosene stocks plunged by 1.3 million barrels, or more than 10 per cent, to a six-month low of 10.65 million barrels.

"Other than the Japan factor, we also have the Lunar New Year and that would likely result in more demand for air travel," said a fuel trader in Singapore, declining to be named as he was not allowed to talk to media.

REUTERS