European jet fuel bounce expected to draw in Asian supply in Q1

European jet fuel prices may come under pressure in Q1 as previously low volumes of supply from Asia increase to meet rising demand in the region, according to market participants.

S&P Global Platts assessed Northwest European CIF jet cargoes -- the benchmark for aviation fuel -- versus Brent at $19.42/b for January on Jan. 17, a 27-month high. However, prices are expected to come under pressure as Asian refiners send more product to Europe and the region's processors increase output to capitalize on strong cracks.

"I think we should see more cargoes [from Asia] from mid-February," a trader told Platts.

The low levels of supply have outweighed poor demand in recent weeks. Global weekly scheduled airline capacity slipped 2.1% on the week to 76.27 million seats for the week starting Jan. 17, as seat capacity fell in all regions apart from North America, North East Asia, Central Asia and Southern Africa, according to aviation data company OAG. However, traffic is expected to increase in Europe towards the end of Q1 as travel restrictions from omicron ease.

"I can't really see this [market strength] easing before Feb, maybe even the second half [of] Feb," a second market source said. "Likely it balances itself out pretty before the end of Q1 and we end up selling off."

Forward prices are descending from the current highs; Platts assessed NWE CIF jet cargo cracks at $16.61/b for February and $15.26/b for March, before bottoming at $14.36/b in June and then rising through to $15.33/b in October.

Delayed purchases

The high prices in January have prompted some buyers to defer purchases until February, traders said.

This will be needed as traders expect increasing demand for jet from April and so more calls on the higher supply.

In the meantime, stocks are low. Jet fuel/kerosene inventories in the Amsterdam-Rotterdam-Antwerp hub declined week on week Jan. 13, dropping 1.9% to 879,000 mt, Insights Global data showed.

Jet fuel/kerosene stocks are now 5.9% lower than at the same period in 2021 and 58% higher than the equivalent week in 2019, the data showed.

Volatile times

The low levels of inventories has left the market more prone to fluctuations. "There is so much volatility as there is no buffer because of low stocks," another trader said, adding that there were no jet fuel cargoes left for January in NWE.

While companies often try to keep a minimum of stocks on their books at the end of the year for accounting reasons, the low levels of stocks for jet fuel amid such low consumption is mostly explained by the backwardated structure of the jet fuel market over the past few months.

"Jet demand was better than expected [at the end of last year]... the market is still backwardated so nobody has a reason to stock up," another middle distillates trader said.