China's open borders do little to boost oversupplied Asian jet fuel/kerosene market

China's reopened borders and restriction-free overseas travel has done little to lift the Asian jet fuel/kerosene market, which remains weighed down by plentiful stocks and weak demand amid growing inflationary and macroeconomic concerns.

"Not sure what impact it will have in the near term but I'm skeptical because price-wise, it [the Asian jet fuel/kerosene market] has been a dump," a regional trader said.

At the Asian close March 15, the Platts FOB Singapore jet fuel/kerosene cash differential was assessed at plus 67 cents/b to Mean of Platts Singapore jet fuel/kerosene assessments, up 12 cents/b on the day, but down $1.82/b, or 73.09%, since the start of the year, S&P Global Commodity Insights data showed.

The decline largely reflects an amply-supplied Asian jet fuel/kerosene market due to unattractive arbitrage economics, as regional refiners ramped up production volumes.

While the Asian jet fuel market has made a remarkable comeback since the peak of the pandemic, which saw planes mostly grounded, the path to recovery for the aviation sector has been rocky.

A surge in the price of oil, coupled with inflation concerns and bottlenecks in airport staffing and logistical supply chains have posed challenges to the industry and added downside risks to the pace of recovery in the aviation sector.

Slow recovery in China

"We have got approvals to increase international flights, but ticket sales are still slower than expected as salary cuts and unemployment remain in China. Also, it takes time to recruit pilots and qualify them to fly," said a fuel procurement manager with a leading Chinese aviation company. He added that the industry doesn't expect the country's demand for outbound flights to fully recover to pre-COVID-19 level until 2024.

China's jet fuel demand is projected to rebound 49% on the year to about 720,000 b/d in 2023, but the volume would be still below the 980,000 b/d in 2019, according to Sijia Sun, an analyst with S&P Global.

Sun added that the international flight volumes started to recover in February with an 11% month-on-month increase and the trend will likely continue in the coming months.

Even so, China's upcoming National Labor Day holiday is expected to add to market bullishness and lift the sentiment in the aviation sector in the wake of pent-up travel demand, ING Chief Economist, Greater China, Iris Pang said. The holiday falls during April 29-May 3.

She added that shopping trips to Europe over the Golden Week holiday is likely to return to pre-pandemic levels as Chinese consumers accounted for a third of global luxury sales in the decade before COVID-19.

Brighter outlook

The International Energy Agency said the global economic outlook has benefitted from China's economic momentum, with rebounding February Purchasing Managers' Index data and robust air traffic demand.

Chinese mobility mostly stabilized after January's "remarkable bounce", the IEA said, adding that Chinese air traffic with domestic flights is now well above pre-pandemic levels. As a result, the IEA raised its estimate for Chinese jet/kerosene demand by 60,000 b/d.

Globally, the IEA said its Q4 2023 forecast for jet/kerosene demand is now at 94% of Q4 2019 levels, representing a 7.5 million b/d year-on-year growth.

Among oil products, S&P Global analysts expect jet fuel/kerosene demand to be the key driver of regional growth in 2023, led by the easing of travel restrictions in China.

"However, Asia's jet fuel/kerosene demand in 2023 will remain some 20% below pre-COVID levels as travelers grapple with high inflation and a slowing economy, compared with a global average of 15% below 2019 levels," S&P Global analysts said in a March 15 note.