Buying interest stems from tighter fuel export quota allowance for the fourth quarter

 

CHINA Aviation Oil, in a rare move, is seeking to buy two cargoes of jet fuel for November delivery into Shanghai and Huangpu via tenders, four sources with knowledge of the matter said on Monday (Oct 28).

 

The subsidiary of state-owned China National Aviation Fuel has been seeking a 30,000-tonne cargo for delivery on Nov 7 to 11 to Shanghai, and a 25,000-tonne cargo for delivery on Nov 28 to Dec 4 to Huangpu.

 

The tender closed at 0700 GMT on Oct 28, with validity up to 8 pm.

 

One of the sources added that it has been years since the company &ndash a key supplier of imported jet fuel to China&rsquo s civil aviation industry &ndash last imported jet fuel for China.

 

The company did not immediately respond to a Reuters request for comment.

 

The buying interest probably stemmed from tighter fuel export quota allowance for the fourth quarter, a second source said, adding that these cargoes could end up being used for the refuelling of international flights.

 

Beijing allocated around eight million tonnes of export quotas for refined fuels in its third batch of issuance late last month, lower than last year&rsquo s third batch of 12 million tonnes.

 

Out of the eight million tonnes, around 1.53 million tonnes are allocated for the trade processing route, under which aviation fuel for the refuelling of international flights falls.

 

The purchase could also involve some &ldquo arbitrage price play&rdquo as well, given that jet fuel export margins for China refiners remain better than petrol or diesel, a third source said.

 

The spread between Asia and the US West Coast prices remains economically feasible for sellers to trade on this route, Reuters calculations showed.

 

This slight spurt in demand will likely be supportive of Asian jet fuel prices and its cash market discussion levels, while attracting swing suppliers to direct their sale cargoes east instead of west in the near term, several trade sources said.

 

Spot premiums for the aviation fuel have shot up in recent weeks because of healthy demand and overall tighter supplies regionally given lower refinery output, with deals for cargoes loading in the first half of November done at premiums of US$0.50 to US$2 a barrel to Singapore quotes.