Jet Fuel Spot Markets & Price Reporting Andrew Bonnington, - PowerPoint PPT Presentation

Airline Treasury & Risk Management Forum 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

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

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 Focus, Impact and Relevance  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

USE OF BENCHMARK ASSESSMENTS 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)

AMSTERDAM / ROTTERDAM / ANTWERP (ARA) North Sea Crudes ARA is the centre of United Europe’s oil States markets Russian Atlantic Crudes Coast INLAND EUROPE MEDITERRANEAN South America Middle Eastern Crudes West ASIA Africa African Crudes

SINGAPORE Middle Japan Eastern Crudes China India Singapore is the centre of Asia’s oil markets Australia

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

HOW DATA IS COLLECTED End of day Real-time technology Transparent: assessment for open price named bids / offers ‘ windows ’ / e- competition window Assessments Values are based Assessments based reflect tradable on Market on on firm bids/offers value (or the Close and traded activity traded value) at (MOC) principles market close

TRANSPARENCY OF INFORMATION

WHY PLATTS? • 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

EUROPEAN NWE CARGO MOC LIQUIDITY DATA Source: Platts

EUROPEAN NWE CARGO MOC LIQUIDITY DATA 2,500,000 2,000,000 1,500,000 Tonnes 2014 2015 2016 Jan-June 1,000,000 500,000 0 Vitol BP Shell TOTSA Trafigura Morgan Stanley Noble Source: Platts

SINGAPORE MOC LIQUIDITY 6,000,000 5,000,000 4,000,000 2013 Barrels 2014 3,000,000 2015 2016 2,000,000 1,000,000 0 Jan-13 Feb-13 Mar-13 Apr-13 May-13 Jun-13 Jul-13 Aug-13 Sep-13 Oct-13 Nov-13 Dec-13 Source: Platts

SINGAPORE MOC LIQUIDITY DATA 10,000,000 9,000,000 8,000,000 7,000,000 6,000,000 Barrels 2014 5,000,000 2015 2016 Jan-June 4,000,000 3,000,000 2,000,000 1,000,000 0 Hin Leong BP Vitol shell Unipec Total Trafigura Winson Glencore Petrochina Rest Source: Platts

Source: Platts DERIVATIVES MOC LIQUIDITY Barrels 10,000,000 15,000,000 20,000,000 25,000,000 5,000,000 0 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 Singapore Jet Kero Jet CIF NW

EUROPEAN JET PRICES FALL SHARPLY 1200 1000 800 $/mt 600 400 200 0 December-13 April-14 August-14 December-14 April-15 August-15 December-15 April-16 August-16 Source: Platts

JET FUEL REFINING PROFITS UNDER PRESSURE 30 25 20 $/barrel 15 10 5 0 Aug-2012 Jan-2013 Jun-2013 Nov-2013 Apr-2014 Sep-2014 Feb-2015 Jul-2015 Dec-2015 Jet Source: Platts

RELATIVE STRENGTH IN GASOLINE RETURNS 30 25 20 $/barrel 15 10 5 0 Aug-2012 Jan-2013 Jun-2013 Nov-2013 Apr-2014 Sep-2014 Feb-2015 Jul-2015 Dec-2015 May-2016 Diesel Gasoline Jet Source: Platts

REFINING MARGINS COMING UNDER PRESSURE 12 10 8 6 $/barrel 4 2 0 -2 -4 Forties ARA Cracking Netback Margin Oman Singapore Cracking Netback Margin Source: Platts

EUROPEAN JET DEFICIT GROWS -0.1 0.0 -0.4 -0.1 -0.7 -0.2 -0.3 0.0 0.2 -0.1 0.2 -0.1 0.1 -0.2 0.1 -0.2 0.0 Source: Eurostat

EU-28 MONTHLY JET IMPORTS/EXPORTS TOP 2015 EXPORTERS (MT/MONTH) TOP 2015 IMPORTERS (MT/MONTH) Baltic flow 316,697 mt Holland 1,852,592 mt (269,279) UK 284,283 mt (663,545) 663,545 mt France 264,332 mt 367,380 mt (367,380) Italy (144,346 204,238 mt 262,990 mt ) Spain (165,480) 175,629 mt 165,480 mt Kuwait 264,332 USA flow UAE 26,257 Saudi 316,697 Arabia 284,283 AG/Far East flow Source: Eurostat

MIDDLE EAST REMAINS TOP JET SUPPLIER TO EUROPE RUWAIS IMPACT: UAE JET EXPORTS SURGE 70% FROM 2014 (Mt / month) 2,250,000 Other 2,000,000 1,852,194 South Korea 1,661,766 1,750,000 1,654,132 1,555,856 1,461,784 1,433,626 1,500,000 1,381,856 UAE 1,250,000 India 1,000,000 750,000 Kuwait 500,000 Saudi Arabia 250,000 0 2009 2010 2011 2012 2013 2014 2015* Source: Eurostat

JAN-JUNE 2016 EU IMPORT DATA 600000 500000 400000 Tonnes 300000 200000 100000 0 UAE SAUDI ARABIA KUWAIT INDIA USA S KOREA RUSSIA REMAINDER Source: Eurostat

MIDDLE EAST REFINERY EXPANSIONS Capacity/ Owner Expansion Completion Refinery 1 Yanbu Aramco/Sinopec 400 kb/d 2014 2 Rabigh Aramco/Sinopec Upgraded (Phase 2) 2016 3 Jazan Aramco 400 kb/d 2018 Jubail 4 4 Al Zour Al Zour KNPC 615 kb/d 2019 5 Ras Tanura 6 Fujairah 5 Ras Laffan 7 Jubail Aramco/Total 400kdb 2013 8 6 Ras Tanura Aramco Upgrade Relaunch Sohar Ruwais 9 11 11 1 Yanbu 7 Ras Laffan QP/Total +146 kb/d 2016 Rabigh 2 8 Duqm Fujairah 10 IPIC 200 kb/d 9 Sohar QRPIC +86 kb/d 2016 Jazan 3 10 Duqm IPIC/OOC 230 kb/d 11 Ruwais ADNOC +417kbd 2015

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- on-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 on 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.