Asia-USWC jet fuel fixtures to rise on heightened US demand

Singapore — Flows of Asian jet fuel to the Americas are expected to gain momentum to meet rising air travel demand and increasing airline capacity in the coming months, industry sources said, a move seen as crucial to help mop up surplus barrels from the region as aviation fuel requirements in Asia lagged behind on rising COVID-19 cases.

Last week alone, at least two MR size ships were chartered to load jet fuel in the coming days for delivery to the US next month or in early June. Most brokers said that the April-loading program on the North Asia-US routes is expected to be eventually bigger than last month due to upcoming demand for June consumption.

So far, at least half a dozen MRs have been taken from the spot market for April jet fuel loading in North Asia with the option for USWC delivery, they said as the arbitrage opened in early April.

On a 10-day rolling South Korean jet fuel arrives in California at a $1.6751/b discount to Los Angeles spot prices, according to Platts data April 15.

ATC has a jet fuel cargo scheduled for loading later this week in South Korea, with the US being one of the options for delivery, said shipping sources tracking such deals. Meanwhile, Glencore's ST Shipping has another cargo for loading in Japan in the last week of April, they said.

"US jet fuel demand is getting better ... Arbitrage [between US and North Asia] also looks good," a source with a South Korean refinery said April 15.

Sources noted that at current freight it will cost close to $29/mt to ship out an MR cargo on the South Korea-USWC route.

Industry experts noted that the uptick in jet fuel trade flows was underpinned by anticipation of higher air travel demand in the US following progress in the country's virus containment and vaccination programs.

"Domestic US registered improvements in passenger traffic ... The improvement in the US is driven by falling rates of contagion while vaccination is also accelerating," the International Air Transport Association said in an April 7 report.

JY Lim, oil markets adviser at S&P Global Platts Analytics agreed, adding "US Air traffic has been picking up seasonally, and further supported by the progress of COVID vaccine rollout. Spot South Korean jet into the USWC has been viable, with the arb improving over the last few weeks".

The increase in US demand has also impacted stocks with inventories well under the five-year range.

US airlines ramp up capacity

Aviation data and analytics company OAG said in a report April 15 that US airlines seat capacity in April is 27% below pre-pandemic levels in April 2019.

"American Airlines is furthest down the road to capacity recovery with seats in April 2021 just 27% below where they were two years ago, and 5% more seats operating than last month," the report said.

The country's biggest domestic carrier American Airlines said April 14 that it expects to operate a summer schedule with domestic capacity almost equal to 2019 at more than 90%, and 80% of its international seat capacity compared to 2019 due to stronger demand projections.

Asia headwinds

In comparison, the Asian aviation scene remains depressing as continual border controls and rigid travel restrictions remain in place due to fresh waves of COVID-19 infections, weighing on jet fuel demand.

India, the second most affected nation after the US, reported a record 200,739 new coronavirus infections on April 15, further dimming the demand recovery outlook for the aviation sector.

The IATA said April 7 that Asia-Pacific airlines' traffic was down 95.2% in February compared to pre-pandemic levels in February 2019, and was little changed from the 94.8% decline registered for January 2021.

The Asia Pacific region continued to suffer from the steepest traffic declines for an eighth consecutive month, and that flight capacity was down 87.5% from 2019, the association added.

The downbeat sentiment was echoed in the Association of Asia Pacific Airline latest report on March 29. AAPA reported that during the first two months of this year, Asian airlines carried just 4% of the number of international passengers compared to the pre-pandemic levels in February 2019 due to differing travel requirements and restrictions, with the unpredictability of further changes.