South Korean May jet fuel sales to US surge but marketers wary of LA travel concerns

South Korea's jet fuel exports to the US surged to nearly a four-year high in May amid improving middle distillate margins, but refinery product marketers are cautiously assessing the potential impact of civil unrest in Los Angeles on near-term tourism and aviation fuel demand on the US West Coast.

According to preliminary data released by the Korea Petroleum Association, South Korea's jet fuel exports to the US reached 4.3 million barrels in May. This marks the highest volume of sales to the US since 4.557 million barrels were exported in August 2021, as reported by the state-run Korea National Oil Corp.

As the largest jet fuel supplier to the US, South Korea's May exports included 1.19 million barrels from GS Caltex, 940,000 barrels from SK Energy, and 930,000 barrels from S-Oil, with the remainder sourced from other trading houses and military supply operators.

Notably, oil products such as jet fuel are exempt from the mutual tariff impositions by the US. In terms of middle distillate supply commitments, US customers are of significant importance and are prioritized for any requests for additional barrels, marketing executives from two major South Korean refiners, including S-Oil, said over June 10-11.

Jet fuel crack spreads have been improving since late March, with major regional airlines reporting strong April traffic figures. Hong Kong's Cathay Pacific Airways, for instance, reported a 36.3% year-over-year and a 5.2% month-over-month increase in passenger traffic, reaching 2.37 million.

Platts, part of S&P Global Commodity Insights, assessed the second-month Singapore jet fuel crack swaps against Dubai crude swaps at an average of $15.47/b so far in June, compared to an average of $15.16/b in May and $13.82/b in April.

Looking ahead, middle distillate marketers are carefully evaluating the potential negative impacts of protests and civil unrest in LA on the tourism sector of the US West Coast and the demand for aviation fuel.

"Robust margins can only be sustained when supported by healthy demand fundamentals... we often analyze future demand prospects by studying data shared by major tourism agencies," said a middle distillate marketing manager at a major refiner based in Ulsan. "Apparently, holiday flight sales to the US have declined significantly in recent days."

Refinery product marketing and sales managers in Seoul indicated that jet fuel sales across Southeast Asia and Japan are expected to outperform in the near-term trading cycles, as Asian travelers are opting for more affordable and safer options within the region instead of the US. When asked about the possibility of shifting more barrels for sales in the Asian market, marketing managers at two refiners stated that it would all depend on the bids and the economics of clean tanker freight.

Meanwhile, market participants on the US West Coast have expressed differing views on the situation. One USWC jet fuel trader emphasized that the media is exaggerating the protests, suggesting that while certain areas may be affected, life continues as usual in most parts of the city.

"I don't think the protests will cause any more harm than has already been done," he said, noting a few flight cancellations from European airlines, though the reasons behind these cancellations remain unclear. The trader maintained that unless military intervention escalates the unrest, the impact on flights should be minimal.

Conversely, another trader raised concerns about tourist travel to LA, especially following recent wildfires. He pointed out a decline in tourist traffic, as potential visitors are wary of traveling to a city linked to both wildfires and protests.

Platts assessed Los Angeles jet fuel on June 10 at NYMEX July ULSD futures minus 14.00 cents/gal, down from minus 9.25 cents/gal on the previous day.