At least a few Japanese refiners have started to consider importing more kerosene for February deliveries amid a particularly bullish winter demand period in the country, industry sources said Friday.
Japan has been experiencing a colder winter than the previous year at the start of the country's peak winter heating demand season in December, leading to higher kerosene demand for heating across the country, industry sources said.
Sources said Japan's kerosene sales at service stations were up more than 10% from a year ago in December as a result of the colder weather throughout the month.
Colder temperatures in Japan in December than a year earlier led local refiners to import a number of SR-sized kerosene cargoes from South Korea in January after taking some South Korean barrels in December, the sources said.
The Japanese buyers will decide during the next week whether to move ahead with February kerosene purchases from South Korea after scrutinizing their stocks balance over demand, the sources said. They added, however, that Japan's additional kerosene imports in February could be less than January, depending on the pace of their stock depletion.
According to the latest month-long weather forecast released Friday by the Japan Meteorological Agency, all regions in the country are forecast to have below the 30-year average over January 5-February 4.
Japan's kerosene stocks stood at 15.32 million barrels in the week to December 22, down 4.2% from the previous week, according to the latest data available from the Petroleum Association of Japan. They were also down 23.7% from a year earlier, according to Platts data.
The year-on-year drop in kerosene stocks in the week to December 22 came after local refiners increased output of the middle distillates by 19.9% year on year to 3.9 million barrels, according to Platts data.
Japan's kerosene imports for December to February were forecast to be at least 7-7.5 million barrels, higher than the 6.3 million barrels of the same period last year.
Cold weather in Japan has increased demand for kerosene for heating in the past several weeks, encouraging refiners in South Korea to reduce jet output, and in turn leading importers in southern China to look to Singapore for supplies, industry sources said.
Japanese buyers typically increase kerosene imports from South Korea during winter months as heating demand increases. In November, South Korean exports of kerosene had already totaled 99,804 mt for the whole month, according to the latest data from the Korea International Trade Association. That was the largest monthly flow between the two countries since February.
While December data has yet to be released, several market sources said they estimated volumes for December to have already doubled to as much as 200,000 mt of kerosene, and forecast a similar flow for January. That would be in line with the peak seen in the previous winter, in February 2012, when South Korea exported 212,735 mt of kerosene to Japan. But for the whole winter it would easily surpass the previous year.
"It's definitely having a bigger impact than last year," one Singapore-based trader said Friday.
In early December, FOB Korea kerosene parcels were heard traded at $4/barrel above Mean of Platts Singapore jet fuel assessments, which was about the level of peak prices seen in the 2011/12 winter period, according to traders.
But towards the end of the month sporadic trades were heard done above $5/b and as high as $10/b against MOPS, according to trade sources. Those trades are generally for small parcels of kerosene for SR-sized tankers, at around 10,000 mt each only.
In contrast, FOB Korea jet fuel prices have been around 40 cents/b above MOPS for most of the last month, though a few trades have been reported as high as 60 cents/b. The FOB Korea cash differential rose to 55 cents/b Friday, in part boosted by expectations of Japanese buying, and also by a related increase in Singapore jet fuel prices.
"At these price levels, Japanese buyers are not buying a lot of kerosene, just the necessary quantities," one Singapore-based trader said.
"But this has given refineries a good reason to hope for higher prices when the buyers return from vacation, so they're waiting to see what they can get."
With refiners maximizing kerosene output, jet fuel supply has been somewhat reduced, sources have said. And Singapore stocks have fallen back after several companies cleared out their tanks at year-end. International Enterprises Singapore showed total stocks of middle distillates, which include gasoil and kerosene, at 10.21 million barrels for the week ended Wednesday, down 3.01% from the previous week.
That has helped to pull Singapore jet fuel prices up from the bearish trend seen towards the end of November. On November 30 the FOB Singapore jet fuel/cash Dubai physical crack spread had fallen back to $16.54/barrel, but as of Friday that spread had risen back up to $18.65/b.
