Europe Q4 Jet Fuel Deficit Looms; South Korea Ramps Up Exports

Europe's Looming Supply Gap

Europe is set to face a significant jet fuel shortfall in the fourth quarter of this year, with consultancy Energy Aspects projecting a daily deficit of 510,000 barrels. This comes as the continent continues to grapple with reduced supplies from the Middle East, a situation ongoing for over six months since the Iran war began.

That conflict cut approximately half of Europe's typical jet fuel imports. In contrast, the United States is expected to see a Q4 surplus of 18,000 bpd, and the Asia-Pacific region a larger surplus of 419,000 bpd, reflecting a similar trend observed in the third quarter.

South Korea Becomes Key Supplier

To mitigate the supply crunch, Europe has increasingly turned to distant sources, notably South Korea, which has become the latest large supplier.

Data from commodities intelligence firm Kpler shows European jet fuel imports from South Korea reached 129,000 barrels per day in September, marking a four-year high for monthly volumes from the nation and the highest since October 2022. LSEG data corroborates these figures.

This surge follows South Korea's July jet fuel output hitting a seven-year high of nearly 13.89 million barrels, according to government data, with exports also reaching a three-and-a-half-year peak.

Refinery Output and Market Arbitrage

The rise in South Korean output is attributed to increased refinery crude processing rates. Provisional government data indicates July refining runs stood at 2.7 million barrels per day, a 16% increase from June, with traders anticipating firmer crude runs for August.

Europe's reliance on diverse suppliers, including Nigeria, the United States, and Canada, intensified after the Middle East disruptions. Independently held jet fuel stocks in the Amsterdam-Rotterdam-Antwerp (ARA) oil refining and storage hub reflect the tight market, reaching a seven-year low in the week to September 10.

Asian Refiners Benefit from Price Spreads

Asia functions as a flexible supplier of jet fuel to Europe, with traders typically diverting shipments when price differences (arbitrage) make it profitable.

James Noel-Beswick, head of commodities at Sparta Commodities, noted that the widening spread between Asian and European diesel benchmarks, with European diesel hitting a record high this week, makes exporting fuel to Europe more lucrative.

This dynamic ensures continued European imports from Asia, creating opportunities for Asian refiners and traders to capitalise on regional price disparities and meet European demand, impacting their revenue streams.