The difference in price (premium) for immediate delivery of US West Coast jet fuel sold to Asia has expanded to its largest margin in almost two years, according to LSEG data released on Thursday, and quoted in a Reuters report.
The growing disparity in pricing can be attributed to two key factors affecting global jet fuel markets.
Dual pressure widens global price gap
Firstly, a decrease in the US supply, primarily stemming from temporary or permanent refinery shutdowns, has tightened the market on the Western side.
Secondly, a deceleration in demand from China has had the opposite effect in Asia, making a greater volume of jet fuel available within that regional market.
This dual pressure—reduced supply in the West and increased availability in the East—is the driving force behind the current widening gap in global jet fuel prices.
The Los Angeles jet fuel derivative price for February is approximately $40 per barrel higher than Asia’s benchmark.
Data indicated this level was last observed in mid-February 2024.
Source: Reuters
Hopes among traders are that the wider theoretical spread in jet fuel prices between the two regions will result in increased shipments from Asia heading toward the US West Coast.
Asia’s jet fuel prices are facing increased downward pressure, partly due to soft demand in China, according to Matias Togni, an analyst at NextBarrel.
Data from the flight tracking service Airportia indicates a 1.6% reduction in China’s overall flight numbers compared to the same period last year.
US output down on refinery outages and closures
Analysts noted that fuel supplies in the United States are expected to become even tighter due to permanent plant closures, compounding the current reduction in output caused by refinery outages.
The price difference for jet fuel between Asia and the US West Coast has increased.
This widening spread is primarily due to a reduced supply of jet fuel barrels on the US West Coast, a situation exacerbated by a prolonged shutdown at PBF Energy’s refinery in Martinez, California, Ivan Mathews, Vortexa’s head of APAC analysis, was quoted in the Reuters report.
Additionally, repair work has been ongoing on a jet fuel unit at Chevron’s El Segundo refinery (285,000 barrels per day) since it was damaged by a fire in October.
Jet fuel stocks on the US West Coast were nearing two-month lows, registering 11.19 million barrels as of January 2, according to data from the US Energy Information Administration (EIA).
Furthermore, EIA data indicated a decline in the region’s refinery utilisation, which fell to 80% for the week ending January 2, down from 85.4% during the corresponding week of the previous year.
Supply is set to tighten further as Valero announced on Wednesday plans to gradually wind down operations at its 145,000 barrels-per-day Benicia refinery in California, starting in February.
This follows Phillips 66’s decision to close its 139,000-bpd Los Angeles site late last year.
The two plants collectively make up approximately 11% of the US West Coast’s total refining capacity.
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