Asia Pacific jet fuel market sees glimmer of hope after travel checks ease

Many countries in the Asia Pacific region are embracing freer travel amid rising vaccination rates and a will to rejuvenate their tourism industry to spur economic activity, boding well for the jet fuel market, even as the coronavirus pandemic continues to bite.

"Numbers [of infections] are still rising, but we all know COVID is not going away anytime soon. Borders will reopen as countries move to endemic ... it is happening," a trade source said Feb. 24.

A second market participant echoed a similar sentiment. "There are places like Hong Kong where [jet fuel] demand is seeing a 30% drop because of their policy. But overall jet [demand] is going up".

Australia for one has opened up its borders to tourists and international travelers after a near two-year long hiatus. The country had closed its borders to such visitors on March 2020 but on Feb. 21 the country removed its final travel restrictions for fully vaccinated travelers.

On Feb. 7, the Australian Government on its website said that "with improving health conditions, including a recent 23% decline in hospitalizations due to COVID, the National Security Committee of Cabinet today agreed Australia is ready to further progress the staged reopening of our international border."

This move will give certainty to the country's "vital tourism industry" as the country continues to secure its economic recovery.

In 2018-19, tourism generated more than $60 billion for the Australian economy, with more than 660,000 jobs dependent on the industry, it said.

In Singapore, the Singapore Airlines Group, or SIA, has announced the expansion of its flight network under the vaccinated travel lane scheme, or VTL, to 47 cities across 25 countries starting Feb. 25.

The SIA Group's flight extension network comes in line with the government's four-stage road map to transit the city-state to "COVID-19 endemic," despite a continuous rise in COVID-19 infections in the country.

Thailand is also easing entry requirements for incoming travelers from March 1. The Centre for COVID-19 Situation Administration, or CCSA, has decided to scrap the second COVID-19 RT-PCR test, currently required for overseas arrivals on their fifth day in the country, to a self-administered rapid antigen test. As part of the relaxation, the amount of required insurance coverage is also being reduced, local media reported.

India has also eased its quarantine requirement for international travel in February, getting rid of the mandatory seven-day home quarantine for international arrivals and the requirement for them to undergo an RT-PCR test on the eighth day. Several local media have reported that regular international flights in the country could resume as early as March 15 although an official announcement is awaited from the Directorate General of Civil Aviation.

Demand recovery

Asia Pacific kerosene/jet demand is expected to recover from the recent dip, which was dampened by the outbreak of omicron, as countries are moving toward the re-opening of their economies, including governments' easing of travel restrictions amid higher rates of vaccination, JY Lim, adviser oil markets at S&P Global Platts Analytics said Feb. 24.

Asia Pacific kerosene/jet demand year-on-year growth is expected to rise from 185,000 b/d in the first half of 2022 to 660,000 b/d in H2 2022, Lim said.

However, even with this growth, Asia Pacific kerosene/jet fuel demand in 2022 will still be 23% lower than 2019's level as business travel will take time to recover fully, he added.

"Regionally, more borders are opening up ... hence, [jet fuel] demand should increase, but supply will not increase as fast until [the] regrade improves, which it should," said a regional trade source based in Singapore.

"From April, we should see more jet [fuel] production from Northeast Asian refiners towards tail end of winter, just to replace the kero production. But not a lot more as regrade is still not too attractive," he added.

The Singapore front-month March regrade swap -- the value jet fuel commands over 10 ppm sulfur gasoil -- averaged minus $3.64/b in February to date, widening from minus $2.83/b in January, S&P Global Platts data showed.

The Asian jet fuel/kerosene complex has been characterized by growing demand optimism from the downstream aviation sector and a supply crunch due to curtailed refinery output, industry sources said, which has helped to boost spot prices around the region.

The cash differential for cargoes loading from the main trading hub of Singapore climbed 9 cents/b day on day to plus $1.18/b to Mean of Platts Singapore jet fuel/kerosene assessment at the Asian close Feb. 25.

The strength in the jet fuel/kerosene complex was also seen in the derivatives curve, where the Q2-Q3 quarterly spread -- an indication of near-term sentiment -- was assessed at $2.96/b on Feb. 25, up 10 cents/b from the previous day when it was at $2.86/b.

Still, some sources feel that more needs to be done to release travel-related pent-up demand.

"For meaningful recovery to take place, border restrictions would need to be eased on a consistent basis, and the current multilayered travel requirements streamlined and simplified for travelers," Subhas Menon, director general of Association of Asia Pacific Airlines said in a statement Jan. 27.