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Asia’s travel optimism boosts jet fuel demand, but delta spread may clip recovery

Demand for jet fuel in Asia is likely to be on the path to recovery, with some countries opting to reopen even as the spread of the delta variant of the coronavirus lingers, middle distillate sources told S&P Global Platts.

Traders said with the inoculation campaigns underway and a shift to ‘zero-COVID’ policy by some countries, reopening of a large portion of the region might have a positive knock-on effect on jet fuel demand.

A glimpse of recovery was seen in the latest report released Sept. 15 by Singapore Airlines Group, which showed it flew 155,400 passengers in August, compared with just 39,800 passengers over the same month last year. The airline carried about 1.1 million passengers in March 2020, before pandemic-induced border restrictions severely crippled air travel globally.

Industry sources said Singapore Airlines Group’s August operating statistics reflect some optimism that recovery in air travel can be maintained in the second half of 2021, in line with Singapore’s progressive reopening. Passenger demand should see further uplift with the establishment of vaccinated travel lanes between Singapore, Germany and Brunei on Sept. 8, in addition to a quarantine-free travel policy for visitors from Hong Kong and Macao on Aug. 26.

“Globally, some countries with high rates of vaccination are learning to live with the coronavirus. In Asia, Singapore is slowly opening up by allowing quarantine-free travel for those who are fully vaccinated with a few selected countries. Other countries are likely to follow amid a wider rollout of vaccines in the region,” JY Lim, advisor, oil markets at S&P Global Platts Analytics said.

Lim added that while the kerosene/jet fuel demand is improving, and is up by 6.6% from last year’s level, 2021 demand will still be lower by close to 31% versus 2019 levels as international air traffic remains constrained.

Slow jet fuel demand recovery

However, some traders and analysts said the aviation sector recovery is likely to be slow.

While regional media outlets have reported that many countries have been shifting towards the use of more targeted restrictions in a bid to lessen the economic strain of a national or regional lockdown, industry sources said this would be more difficult to replicate in the case of airlines.

In addition, with infection rates still high regionally, countries could make snap decisions to close borders to curb the spread of the virus, heightening the uncertainty of long-term viable operations for airlines. This was evident in China, when fears of a new outbreak led to a 50% decline in commercial flight activity in mid-August versus mid-July, according to data from Radar Box.

The FOB Singapore jet fuel/kerosene cash differential sank deeper into negative territory in first-half September at an average of minus 13 cents/b to Mean of Platts jet fuel/kerosene assessment, compared with minus 5 cents/b in first-half August, Platts data showed.

At the 0830 GMT Asian close on Sept. 15, the differential was assessed at a discount of 4 cents/b to MOPS jet fuel/kerosene assessment, flipping from a premium of 1 cent/b the previous day.

Market sentiment, however, remains cautiously optimistic, with the front-month October-November FOB Singapore jet fuel/kerosene time spread averaging plus 2 cents/b in H1 September, up 5 cents/b from minus 3 cents/b in H1 August, Platts data showed.

Strength was also seen in the Q4 2021-Q1 2022 time spread — an indication of medium-term sentiment — which was up 3 cents/b in H1 September to an average of plus 24 cents/b compared with 21 cents/b in H1 August.
Source: Platts

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