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Commodities

Fuel prices expected to keep declining

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A ground crew member fills a plane's fuel tank.   © Reuters

TOKYO -- Prices of petroleum products have fallen across the board in Asia. In Singapore, the price of kerosene as aircraft fuel stands at around $60 per barrel, down more than 20% from its high in early May. Gas oil is trading at just under $60 per barrel, down nearly 30% from its high in May. Both prices are the lowest in six years and three months. Falling demand, as well as declining crude oil prices -- the spot price of Dubai crude has fallen to $50 per barrel -- has weighed on fuel prices.

     In Singapore, inventories of middle distillates, including kerosene and gas oil, amounted to 13.17 million barrels as of July 22, the highest level in about four years. They expanded 40% in a three-week period.

     In South Korea, Middle East respiratory syndrome began spreading around June, resulting in a decline in the number of airline passengers. This became a negative factor for kerosene trading. Asiana Airlines and Korean Air Lines planned to cancel a combined 200 flights or so on their Japan-South Korea routes for July and August, according to Japan's Ministry of Land, Infrastructure, Transport and Tourism. Japan Airlines and All Nippon Airways also said the number of reservations on flights from Japan to South Korea had fallen.

     Asian exports of aviation fuel to North America are also slow. Usually, if kerosene supplies increase in Asia, surplus fuel tends to be shipped to the U.S., where air travel demand grows in summer.

     But U.S. airlines are now refraining from increasing flights so as to raise the value of each seat. As a result, there is little growth in demand for jet fuel.

     Meanwhile, U.S. refineries are treating more crude oil due to strong gasoline demand. Since a certain amount of jet fuel is made when gasoline is produced, inventories of aviation fuel have accumulated. Kerosene inventories amounted to 44 million barrels as of July 24, up 25% from a year earlier, according to the U.S. Energy Information Administration.

     As for gas oil, industrial demand has weakened, mainly in China. Exports from Chinese refineries seem to be expanding. Under the influence of the country's stock market decline, "demand for petroleum products may continue to decrease as consumption and distribution are expected to remain stagnant," said Takayuki Nogami, chief economist at Japan Oil, Gas and Metals National Corp.

     There is another negative factor. In the Middle East, "supply is growing as new oil refineries have been built," said Mikiko Tate, a senior analyst at Sumitomo Corp. Global Research. This is hampering the flow of petroleum products from Asia to the Middle East.

     Inventories of middle distillates have also increased in Japan. JX Nippon Oil & Energy plans to reduce the volume of crude oil it treats by 200,000 kiloliters, or 3.7%, in August, compared with its initial plan. In autumn, crude oil demand is expected to fall temporarily as East Asian refineries begin undergoing scheduled repairs.

     Many analysts now expect crude prices to decline further.

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