At least 90,000 metric tons of jet fuel headed to U.S. from Asia: trade

Reuters News
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Posted: Aug 15, 2012 6:50 AM
At least 90,000 metric tons of jet fuel headed to U.S. from Asia: trade

By Jessica Jaganathan and Luke Pachymuthu

SINGAPORE (Reuters) - At least 90,000 metric tons (99,207 tons) of jet fuel are set to be shipped from Asia to the U.S. West Coast from late-August to fill a supply shortfall after a fire shut a crude unit at California's second-largest refinery, traders and shipbrokers said on Wednesday.

Morgan Stanley and Chevron Corp have each fixed a medium-range vessel to carry about 30,000 metric tons of jet fuel, to be loaded from South Korea in early September, headed to the U.S. West Coast, they said.

Royal Dutch Shell, BP and Vitol are also set to ship jet fuel cargoes on that route, traders said.

The shipping fixtures, however, could not be confirmed with the relevant companies.

Chevron's 245,000-barrel-per-day (bpd) refinery in Richmond, California, may be shut for at least four to six months after a major fire at its crude distillation unit last week, industry intelligence group IIP Energy said in a report that suggested the outage may be twice as long as feared.

While the refinery is continuing to produce about 50 percent of its capacity for transportation fuel while the CDU is shut, traders expect a shortage of oil products over the next few months in the region.

Profitable arbitrage economics to ship jet fuel from North Asia to the U.S. West Coast would also mean an increase in cargoes on that route over the coming weeks, traders have said.

A Western trader is moving at least one gasoline cargo from North Asia to the U.S. West Coast, traders have said.

Prior to the fire, only about 30,000 metric tons of jet fuel was shipped from Asia to U.S. West Coast every month, a Singapore-based trader said. The term cargoes are sometimes sent to airlines based in Hawaii, Alaska and Vancouver which usually land on the U.S. West Coast.

Jet fuel spot cargoes usually move from South Korea to the U.S. West Coast only about three to four times a year, a trader said earlier.

"Morgan Stanley has big shorts into the airlines business in the United States," said a Singapore-based trader.

Morgan Stanley will also most likely ship an August 25-29 loading jet fuel cargo from Taiwan, which it purchased from Formosa Petrochemical Corp in an earlier spot tender, traders said.

BP more recently bought a jet fuel cargo from Formosa for loading in mid-September, which will also likely be shipped to the United States if the economics remain favorable, they added.

FREIGHT RATES CONTINUE INCREASE

Meanwhile, freight rates for the medium-range vessels to carry clean products from South Korea to the U.S. West Coast continue to rise, shipbrokers said.

The rate has increased from $1.2 million prior to the fire to $1.27 million earlier this week and to at least $1.3 million now, one of them said.

A second shipbroker estimated that it will take about 19-20 days to ship a jet fuel cargo from South Korea U.S. West Coast.

Although profitable under current freight rates, shipments next month could be limited as very few spot cargoes are available in September, said traders and refining sources.

Most South Korean refiners have sold out their jet fuel cargoes for September amid supply constraints elsewhere in the region after refinery maintenance increased demand, they said.

But the situation should improve from October with some Asian refineries expected come back online.

The improved profitability of the Asia-U.S. route also comes as European demand for jet fuel is set to fall with the end of peak summer demand and the Olympic Games in London, traders said.

"I think some of the companies will now start to send jet fuel mostly to U.S. West Coast, instead of to Europe," a North Asian trader said.

(Editing by Ed Lane)