Middle East jet fuel suppliers boost exports as Europe's air travel demand surges

Middle East jet fuel suppliers are boosting jet fuel/kerosene exports to Europe to cash in on surging demand for air travel following easing of pandemic-led movement curbs.

Traders said that jet fuel requirements from the West are likely to get stronger, fueled by a combination of international and regional holidays and easing border restrictions across an increasing number of countries that will see more travelers take to the skies.

An aviation fuel demand revival in Europe -- driven by seasonal travel patterns, low stocks, and a lack of local supply -- has resulted in a steady pull for Middle Eastern cargoes, traders said.

Western Europe's weekly airline seating capacity increased 0.9% on the week to 21.14 million seats for the week starting May 16, representing about 86.9% of prepandemic capacity on May 13, 2019, latest data from flight database and statistics company OAG showed.

Europe is net short jet fuel, with the balance arriving from East of Suez markets, such as the Persian Gulf, and India.

"There is still strong demand [for Middle East-origin jet fuel] -- Europe is getting demand back, the spring/summer travel season is there so demand is coming back," a Middle East-based trader said. "There is relative weakness of jet [fuel] compared to diesel, but on its own, it [jet fuel is] quite strong ... And there is still demand for arbitrage volumes to come to Europe, and the US."

A weak regrade spread due to strong gasoil demand had also resulted in European refiners preferring to maximize co-distillate gasoil production that capped jet fuel output, the trader said.

Physical cracks for European jet barges hit record highs earlier in May as aviation fuel availability lags an uptick in demand ahead of the summer flying season, S&P Global reported earlier.

Lofty jet fuel/kerosene prices in the West have opened arbitrage lanes from Asia and the Middle East, trade sources said, with viable economics despite strong freight rates.

"Jet arbs are still wide open," a regional trader said, referring to favorable economics to move Middle East-origin jet fuel/kerosene cargoes to the West to plug the supply gap there.

Regional prices were already reflecting the strength, with the Platts FOB Arab Gulf jet fuel/kerosene cash differential reaching a more than three-week high of $7.60/b at the Asian close May 17, up 25 cents/b on the day, S&P Global data showed. The assessment was last higher at $7.80/b on April 25.

No immediate impact from proposed Russian oil ban

Most traders expect that trade flows between the Middle East and Europe will be mostly unaffected even if a European ban on Russian oil materializes, due to low Europe's low dependency on Russian jet fuel/kerosene exports. Europe's proposed ban on Russian oil remains in limbo after six rounds of discussions as of May 16.

"I don't think Russian sanctions impact jet flows at all," a trader with a Middle Eastern refiner said.

Northwest Europe jet fuel/kerosene imports ranged 200,000-300,000 b/d in the first four months of 2022, with nearly half of the inflows from the Middle East, according to S&P Global analysts. Top exporters were Kuwait, Saudi Arabia, and the UAE, while the other half of the inflows were drawn from Asia.

S&P Global estimated Europe's imports of jet fuel from Russia at just 10,000 b/d over January-April. Even if Europe's ban on Russian jet fuel/kerosene supplies is approved, it may not result in a big pull of barrels from the Middle East.

The ramp up of regional mega-refineries, such as Al Zour and Jazan, in the second half of 2022 is expected to add healthy volumes of jet fuel to the market, diminishing the likelihood of a significant impact on supply, S&P Global analysts said.