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Jet Fuel Spot Markets & Price Reporting

Andrew Bonnington, Platts

JET FUEL SPOT MARKETS AND PRICE REPORTING

Andrew Bonnington Editorial Director, Strategic Oil Markets Development October 2016

• Introduction to Platts
• The role of Price Reporting Agencies (PRA’s)
• Liquidity in assessment processes
• Current trends in jet fuel prices

AGENDA

PLATTS – AN INTRODUCTION

Enabling the markets to perform with greater Transparency & Efficiency Sinc e

PLATTS – AN INTRODUCTION

Editorial and market assessments are conducted with complete Independence & Impartiality

PLATTS – AN INTRODUCTION

PLATTS – AN INTRODUCTION

BENCHMARK PRICE ASSESSMENTS – THE SIGNIFICANCE

• Benchmarks are used to price

term contracts

• Futures settlements are often

tied to spot market assessments

• Derivatives “price out” against

spot price assessments or futures settlements Focus, Impact and Relevance

Main applications of assessments in the physical markets

• Frame agreements (long-term contracts) at “market price” which mitigate price volatility
• Lower-risk, assessment-linked spot transactions, which help to manage cash flow
• New trading strategies (sell fixed / buy floating priced cargoes in a falling market, for

example)

• A reference for current market price (for analysts, investors, traders just returned from

holidays…)

Applications of assessments for derivative markets

• The index functions as the underlying price for settlement basis for derivatives
• Used for OTC (over the counter) paper swaps and exchange-cleared futures & options
• Settlement mechanism tends to use average of the month of assessment prices
• Liquidity tends to concentrate in the first few months where spot cargo hedging takes place
• Speculative position-taking in paper markets is an important liquidity provider for market

players seeking true risk management (hedging)

USE OF BENCHMARK ASSESSMENTS

AMSTERDAM / ROTTERDAM / ANTWERP (ARA)

Russian Crudes North Sea Crudes Middle Eastern Crudes African Crudes

ARA

is the centre of Europe’s oil markets South America West Africa INLAND EUROPE MEDITERRANEAN United States Atlantic Coast ASIA

Middle Eastern Crudes

Singapore

is the centre

• f Asia’s oil markets

China Australia Japan India

SINGAPORE

HOW DATA IS COLLECTED

Bids, offers and transactions in… Heard & Intra-day pages Transparent, verifiable price assessments out. With price assessments, not all information can be taken at face value

HOW DATA IS COLLECTED

Transparent: named bids / offers Real-time technology for open price competition End of day assessment ‘windows’ / e- window Assessments reflect tradable value (or the traded value) at market close Values are based

• n Market on

Close (MOC) principles Assessments based

• n firm bids/offers

and traded activity

TRANSPARENCY OF INFORMATION

• Consistency of methodology across markets
• Performance tracking of transactions
• Transparency of information is key
• Global usage of Platts assessments
• 90 IOSCO Oil Benchmarks
• assessments used across whole value chain

WHY PLATTS?

EUROPEAN NWE CARGO MOC LIQUIDITY DATA

Source: Platts

EUROPEAN NWE CARGO MOC LIQUIDITY DATA

Source: Platts

500,000 1,000,000 1,500,000 2,000,000 2,500,000 Vitol BP Shell TOTSA Trafigura Morgan Stanley Noble Tonnes 2014 2015 2016 Jan-June

SINGAPORE MOC LIQUIDITY

1,000,000 2,000,000 3,000,000 4,000,000 5,000,000 6,000,000 Jan-13 Feb-13 Mar-13 Apr-13 May-13 Jun-13 Jul-13 Aug-13 Sep-13 Oct-13 Nov-13 Dec-13 Barrels 2013 2014 2015 2016

Source: Platts

SINGAPORE MOC LIQUIDITY DATA

1,000,000 2,000,000 3,000,000 4,000,000 5,000,000 6,000,000 7,000,000 8,000,000 9,000,000 10,000,000 Hin Leong BP Vitol shell Unipec Total Trafigura Winson Glencore Petrochina Rest Barrels 2014 2015 2016 Jan-June

Source: Platts

DERIVATIVES MOC LIQUIDITY

5,000,000 10,000,000 15,000,000 20,000,000 25,000,000 Jan-13 Feb-13 Mar-13 Apr-13 May-13 Jun-13 Jul-13 Aug-13 Sep-13 Oct-13 Nov-13 Dec-13 Jan-14 Feb-14 Mar-14 Apr-14 May-14 Jun-14 Jul-14 Aug-14 Sep-14 Oct-14 Nov-14 Dec-14 Jan-15 Feb-15 Mar-15 Apr-15 May-15 Jun-15 Jul-15 Aug-15 Sep-15 Oct-15 Nov-15 Dec-15 Jan-16 Feb-16 Mar-16 Apr-16 May-16 Jun-16 Barrels Jet CIF NW Singapore Jet Kero

Source: Platts

EUROPEAN JET PRICES FALL SHARPLY

Source: Platts

200 400 600 800 1000 1200 December-13 April-14 August-14 December-14 April-15 August-15 December-15 April-16 August-16 $/mt

JET FUEL REFINING PROFITS UNDER PRESSURE

5 10 15 20 25 30 Aug-2012 Jan-2013 Jun-2013 Nov-2013 Apr-2014 Sep-2014 Feb-2015 Jul-2015 Dec-2015 $/barrel Jet

Source: Platts

RELATIVE STRENGTH IN GASOLINE RETURNS

5 10 15 20 25 30 Aug-2012 Jan-2013 Jun-2013 Nov-2013 Apr-2014 Sep-2014 Feb-2015 Jul-2015 Dec-2015 May-2016 $/barrel Diesel Gasoline Jet

Source: Platts

REFINING MARGINS COMING UNDER PRESSURE

Source: Platts

• 4
• 2

2 4 6 8 10 12 $/barrel Forties ARA Cracking Netback Margin Oman Singapore Cracking Netback Margin

EUROPEAN JET DEFICIT GROWS

• 0.7
• 0.4
• 0.1
• 0.3
• 0.2
• 0.1

0.0 0.0 0.1 0.1 0.2 0.2

• 0.2
• 0.2
• 0.1
• 0.1

0.0

Source: Eurostat

175,629 mt 204,238 mt 264,332 mt 284,283 mt 316,697 mt

EU-28 MONTHLY JET IMPORTS/EXPORTS

Source: Eurostat

TOP 2015 IMPORTERS (MT/MONTH)

UAE 316,697 Kuwait 264,332 Saudi Arabia 284,283 AG/Far East flow USA flow 26,257 Baltic flow Spain (165,480) France (367,380) UK (663,545) Holland (269,279) Italy (144,346 )

1,852,592 mt 663,545 mt 367,380 mt 262,990 mt 165,480 mt

TOP 2015 EXPORTERS (MT/MONTH)

1,433,626 1,381,856 1,461,784 1,555,856 1,654,132 1,661,766 1,852,194 250,000 500,000 750,000 1,000,000 1,250,000 1,500,000 1,750,000 2,000,000 2,250,000 2009 2010 2011 2012 2013 2014 2015*

MIDDLE EAST REMAINS TOP JET SUPPLIER TO EUROPE

(Mt / month) RUWAIS IMPACT: UAE JET EXPORTS SURGE 70% FROM 2014

Source: Eurostat

Saudi Arabia Kuwait India UAE South Korea Other

JAN-JUNE 2016 EU IMPORT DATA

100000 200000 300000 400000 500000 600000 UAE SAUDI ARABIA KUWAIT INDIA USA S KOREA RUSSIA REMAINDER Tonnes

Source: Eurostat

MIDDLE EAST REFINERY EXPANSIONS

Yanbu Jazan Rabigh Duqm Sohar Fujairah Ras Laffan

11

Ras Tanura Jubail Al Zour Ruwais

1 2 3 4 5 6 7 11 8 9 10

Refinery

Yanbu Rabigh Jazan Al Zour Jubail Ras Tanura Ras Laffan Fujairah Sohar Duqm Ruwais

Aramco/Sinopec

Aramco/Sinopec QP/Total Aramco KNPC Aramco/Total Aramco IPIC QRPIC IPIC/OOC ADNOC 400 kb/d Upgraded (Phase 2) +146 kb/d 400 kb/d 615 kb/d 400kdb Upgrade 200 kb/d +86 kb/d 230 kb/d +417kbd 2014 2016 2016 2018 2019 2013 Relaunch 2016 2015

Owner Capacity/ Expansion Completion

1

2 3 4 5 6 7 8 9 10 11

FUJAIRAH STORAGE GROWTH

Source: Platts

NEW OUTRIGHT JET MIDDLE EAST ASSESSMENTS

In response to strong market demand, S&P Global Platts will begin publishing independent price assessments for a range of refined oil products in the Middle East market starting October 3, 2016. These new spot price assessments will be labeled as "FOB Fujairah" in Platts publications and databases, and run alongside Platts' existing MOPAG netbacks. The new assessments -- for gasoline, gasoil, jet fuel and fuel oil -- will be published alongside Platts existing physical netback values for these products. The new assessments will reflect trade on a free-

• n-board basis at good ports across the Gulf, fully normalized to an FOB Fujairah basis.

The Middle East has seen substantial growth in refining and storage capacity over the past decade, as well as widespread growth in physical oil trading and market participation. These factors have led to a more vibrant and active spot physical market for oil products, which will be the basis for these assessments. NEW ASSESSMENTS: From October 3, Platts will begin publishing independent, outright assessments

• n a free-on-board basis for 95 RON gasoline; 10 parts per million sulfur gasoil and 500 ppm gasoil; jet

fuel; and 380 CST high sulfur fuel oil.