Cost of jet fuel to remain cheap in Singapore as supply glut looms in Asia

Singapore's jet fuel prices to average $74.46/bbl this year.

The rebalancing in the crude market combined with strong global aviation demand will elevate jet fuel prices over the next five years. An Asian fuel supply glut, however, will keep the Singapore benchmark trading at a discount, as Chinese exports flood the market, said BMI Research.

"We expect crude prices to stay mostly at the top end of our USD43-53bbl range in Q416 as market rebalancing continues, and sentiment is buoyed by the prospect of OPEC agreeing to an output quota. We forecast global benchmark Brent to average USD45.5/bbl for 2016 rising to USD55.0/bbl in 2017," it said in a report.

From a historical perspective, BMI expects jet fuel prices to remain weak for the rest of 2016 but to end the year higher as supply-side adjustments in the crude market feed through into higher jet fuel prices.

While BMI expects regional jet fuel prices to continue trading in a narrow band, Singapore, it said will trade at a discount to its North American and European counterparts.

BMI forecasts jet juel in Singapore to rise moderately at US$64.30 (S$88.34) / bbl next year from US$54.20 (S$74.46)/ bbl in 2016.

"A massive Asian fuel supply glut will drag on the Asian benchmark causing a divergence in prices," explained BMI.