Analysis: Asia-USWC fixtures stagnate on tepid US air travel demand

Singapore — Asia's jet fuel exports to the Americas that showed initial signs of revival during the peak holiday season end 2020 has slackened again in 2021, despite aggressive COVID-19 vaccine inoculation drives in the US, as the country's air travel demand remains at a 36-year low.

The recent Arctic freeze also failed to buoy market sentiment as most participants are not expecting a sudden surge in jet fuel shipments from northeast Asia to the US. Shipments of spot jet fuel on the South Korea-USWC route are unlikely to be more than two MR-sized cargoes in February, said a tanker broker.

The harsh cold snap in the US that forced temporary refinery shutdowns was expected to provide some support, but ultimately failed to lift the jet fuel complex.

ATS has taken an LR1 to load a 60,000 mt cargo by end-February or early-March on the South Korea-USWC route. At current rates, this will cost around $19/mt. Sources noted that it will cost close to $26/mt to ship out an MR cargo on the same route.

"February [loadings for jet fuel] seems low around 2-3 MRs ... I am hearing that March should have more [fixtures]," a Singapore-based trading source said.

Another broker confirmed the trend, adding that one cargo was loading early this month and another is due in the week starting Feb. 28.

Jet fuel in contango

Tepid aviation fuel demand has led the front-month March/April Singapore jet fuel/kerosene time spread to remain in contango at minus 24 cents/b at the 0830 GMT Asian close Feb. 24. The front-month time spread has remained in a contango structure since February 2020, and was last in backwardation on Jan. 31, 2020, at plus 48 cents/b, S&P Global Platts data showed.

The FOB Korea jet fuel/kerosene cash premium has eased from a three-year high at 60 cents/b to the Mean of Platts Singapore jet fuel/kerosene assessment Feb. 23 to settle at a 55 cents/b premium at the 0830 GMT Asian close Feb. 24, Platts data showed.

"Aviation demand has not recovered yet. Normally when winter is coming to an end, jet [fuel] prices will become softer. I don't see any increase in [jet fuel] demand, especially from air travel," a Singapore-based refining source said.

Fixtures canceled, redirected

Several cargoes were fixed in late December and early January to replenish jet fuel stocks through shipments from Asia, shipping industry executives said, but the momentum did not last. At least four northeast Asian jet fuel cargoes, 35,000 mt each, were booked for US-bound January loadings but the actual spot shipments undertaken were hardly two, shipping sources said.

Occasionally, ships are tentatively chartered for spot jet fuel voyages to the US, but are subsequently released, sources said. In one such case, an oil trading company had plans to load a 35,000 mt jet fuel cargo from Daesan in early March and even placed an MR on subjects, but plans have now been deferred and the tanker released, said a trading source with knowledge of the matter.

Shipping executives said jet fuel cargoes that have tentative shipment plans for the US have an option to move them elsewhere instead, ending up in destinations such as Australia.

"US-bound jet fuel does not always land there and either the barrels are sold off or shipped elsewhere, or both," an executive said, adding that weak US demand has prompted north Asian refineries to reduce their jet fuel output, which is now operating far below capacity.

US travel demand recedes to 1984 levels

"The Polar Vortex led to extensive flight cancellations which we estimate will subtract 200,000 b/d from current demand levels for the week." S&P Global Platts Analytics said in a Global Oil Products Scorecard report Feb. 19, adding that US jet fuel demand looks to contract 550,000 b/d year on year in February.

Oil traders and shipping brokers attributed this trend to the fragile air travel demand in the US due to coronavirus-related travel and border restrictions. With the US now actively considering mandating COVID-19 testing for domestic air travel, traders said US jet fuel demand may weaken further.

The US Transportation Department data showed that the country's air passenger traffic in January-December 2020 fell 60% year on year to its lowest level since 1984, with less than 370 million passengers. The annual passenger volume used to be more than 900 million before the pandemic destroyed demand for air travel and by extension, jet fuel.