Crude oil refining in Singapore is becoming profitable again, but trade sources said they still did not expect that the fourth quarter would be the traditionally lucrative period of peak winter consumption.

Higher refining capacity in Japan and South Korea coupled with recessionary demand in Japan has reduced shipments to these once-major importers.Surplus oil products flowing from Europe, the Mediterranean, the Middle East and United States have also been giving stiff competition to Singapore products for Asian markets, the sources said.

"This year's been a bad year for traders; we can't depend on Japan and Korea," an oil company trader said. "Certainly the U.S. will be the new feature, attracting jet kerosene cargoes."

The refining of Far East crudes, such as Malaysian Tapis grade, incurred losses last month, as the crude was overpriced relative to Mideast crudes.

But an improvement in jet kerosene prices since the end of September has lifted refining margins, especially for Far East crudes, which are richer in kerosene yield.

"Based on today's product prices, the refining margin for Tapis is about $1.50 a barrel," the oil company trader said. "It's about 70 cents for Arab Light."

Jet kerosene prices have risen on demand from Indonesia, Iran and the United States amid reduced supplies, as refineries in the Mideast and U.S. West Coast close for maintenance.

The United States had been a traditional exporter to North Asia, but it turned around to become a large importer of jet fuel last month.

The sources estimated eight cargoes of jet kerosene were moving in October to the U.S. West Coast and Hawaii to meet a shortage.

Demand for jet kerosene in the United States surged due to production of lower sulfur distillate to meet a new environmental ruling in California and the U.S. military's switch to kerosene-based JP-8 jet fuel from naphtha-based JP-4.

The sources said refining margins for the rest of the year would depend on whether U.S. jet kerosene demand was sustained, and on the weather.

Singapore refiners were bullish for now into the first quarter, and were asking spot processing fees much higher than term fees given good interest

from traders.

Refiners were asking close to $2 a barrel for a spot processing fee, compared with a term fee of around $1.50, he said.

Trade sources said jet kerosene was likely to continue to attract demand

from the United States, as refiners there would need time to adjust their production to meet the new gas oil ruling.