January 15, 2020 / 6:07 AM / a month ago

Jet refining margins shrink on warm winter, weak aviation demand

* Singapore jet fuel cracks at eight-month low

* Cracks at lowest seasonal levels in 4 yrs

* Warmer winter set to continue in North Asia

By Koustav Samanta

SINGAPORE, Jan 15 (Reuters) - Asian refining profit margins for jet fuel have slumped to their lowest in more than eight months, weighed down by weak aviation demand and a drop in the use of heating oil due to a warm winter in Northeast Asia.

Milder winter temperatures this year have kept a lid on the usual demand uptick from heating for kerosene, which belongs to the same grade of oil products as jet fuel, especially in Japan.

Refining profits for the aviation fuel plunged to $11.87 per barrel over Dubai crude on Tuesday, their lowest since April 30 last year, down from $15 early in the month.

Margins for jet fuel are currently at their weakest levels for this time of the year since 2016, Refinitiv data showed.

“There is no extreme cold this year to warrant heating that’ll boost kerosene demand,” a Singapore-based jet fuel trader said, declining to be identified as she was not authorized to speak with media.

“We’re already in the middle of the peak January-February period and there’s no need to stockpile kerosene yet.”

Temperatures in Tokyo are forecast to remain mostly above normal for the next 45-day period, weather forecast models on Refinitiv showed.

Domestic kerosene sales in Japan in the week to Jan. 4 were down 35% from the same time last year at 210,000 barrels per day.

“The jet margins will remain soft at least until the spring refinery turnarounds kick in, when there might be some supply tightening. But with new refinery capacities in the region, the market might still continue to remain under pressure,” the trader added.

Jet fuel margins have fallen about 21% over the past month, according to Refinitiv data.

“Near term is precarious (for jet margins),” said Sukrit Vijayakar, director of Indian energy consultancy Trifecta.

The aviation market struggled for much of last year as global economic activity slowed amid the U.S.-China trade war, dampening air cargo demand and freight volumes.

Global freight volumes declined year-on-year for a thirteenth consecutive month in November, according to latest data from the International Air Transport Association (IATA).

Disruptions in Hong Kong and slowing demand in India and China also affected passenger traffic in Asia-Pacific airlines, IATA said in statement last week.

Positive signs around the U.S.-China trade deal won’t help aviation demand “in the immediate future,” Vijayakar said, adding that existing stocks still needed to be run down.

Reporting by Koustav Samanta; Editing by Florence Tan and Richard Pullin

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