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By Trixie Yap and Shariq Khan
SINGAPORE/NEW YORK (Reuters) -Asia’s jet fuel exports to the U.S. West Coast are expected to hit at least a one-year high in May, according to shiptracking data and three trade sources, as refinery outages in California boosted prices and import demand.
The exports for May, mostly from South Korea, are pegged at nearly 600,000 metric tons (4.28 million barrels), according to shiptracking data from Kpler and estimates from two of the sources. The exports were last at similar levels in February of last year, the Kpler data showed.
"The main reason behind the increasing volume of imports into the USWC region is primarily associated with unexpected outages in local refineries," said consultancy Wood Mackenzie’s research analyst Rodrigo Jacob.
The surge in imports comes at the start of the American summer travel season, potentially impacting travel costs and highlighting the vulnerabilities of U.S. West Coast supply.
Motorist association AAA said near-record numbers of domestic airline passengers were expected to have flown over the May 22-26 Memorial Day holiday period this year. This year’s forecast represents a 2% increase over last year and is just shy of 2005’s record of 3.64 million passengers, AAA said.
Outages at refineries in California owned by PBF Energy (NYSE:PBF) and Valero Energy (NYSE:VLO) since early this year have limited overall U.S. West Coast fuel production. [REF/OUT]
"These outages combined with a decline in local inventories, drove local prices higher and triggered increased interest from traders in sourcing cargoes for import, predominantly from North Asia," Jacob said.
ARBITRAGE
The strength in U.S. jet fuel prices against Asia’s opened the arbitrage window last month, traders said.
The spread averaged more than $17 a barrel in April, Reuters calculations showed, while the average cost of chartering a medium-range vessel carrying 300,000 barrels of jet fuel for the roughly 30-day voyage was $5.50 a barrel, ship broking data showed, providing a good margin for Asian sellers.
In the near term, strong jet fuel supply from China could depress benchmark prices in Singapore and keep arbitrage export trade to the U.S. open, said Matias Togni, an analyst at market insights provider Next Barrel.
China’s jet fuel exports hit a 13-month high in April, official customs data showed, while industry estimates for May volumes were above 2 million tons.
"China prioritised jet fuel above other products in their export quotas, flooding Singapore storage tanks and forcing South Korea to redirect their flows towards the U.S. West Coast," Togni said.
However, U.S. West Coast refinery use rates rose to a two-month high of 82.6% in the week ended on May 16, U.S. government data showed, potentially limiting import demand for June.
Still, the permanent closure of two refineries on the U.S. West Coast from end-2025 could lift the region’s jet fuel imports by up to 100,000 tons per month, analysts said.