Singapore, 23 July (Argus) — Japan's output of jet fuel continues to surge, adding to already ample supplies in Asia-Pacific amid few viable arbitrage options.

Japanese jet fuel production increased by 37.9pc from a week earlier to 2.77mn bl in the week ending 17 July. This was an increase of 73.4pc from a month previously. Refinery run rates rose to 75.2pc in the latest week and up from 61.5pc a month ago.

The country's stocks of jet fuel also reached historical highs at 6.59mn bl for the week, signaling sluggish domestic demand. South Korea saw a similar scenario, with average monthly jet fuel stocks level in the country having risen to 3.52mn bl during this year's first half, a 48.1pc increase over the same period last year. Singapore's middle distillates stocks, comprising jet-kerosine and gasoil, eased back by 252,000 bl to 15.06mn bl in the week to 21 July, but still remained close to the highest seen this year at 15.62mn bl.

But a steady intermonth jet-kerosine contango spread at around $0.50-0.70/bl encouraged storage plays, as market participants bet on higher future prices. There is a lack of viable economics to divert surplus supplies to the US west coast, a main arbitrage outlet for northeast Asian jet fuel. Los Angeles jet fuel differentials are around August Nymex +10.25¢/USG, a level still uneconomical to cover northeast Asian freight costs.

Jet fuel physical differentials in Singapore held at discounts at around $0.55/bl. This compares with a year ago when the differential was at a smaller $0.30/bl discount to spot quotes, underlining the current weak market because of the oversupply.

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