India's jet fuel demand faces rough patch amid third wave fears

India's aviation turbine fuel demand is expected to remain subdued in the near-term as fears of a third wave of COVID-19 infections lurks in the country ahead of the upcoming festival season, with sources anticipating jet fuel prices to be weighed by fresh movement restrictions if cases soar.

While domestic travel has picked up in recent months, a potential spike in cases, could derail this recovery. Meanwhile, international travel remains mostly out of bound as many countries worldwide persist with a travel ban on India.

"Even though domestic passengers flights in India are picking up, the recovery is somewhat meaningless if international flights don't start taking off," a trading source said.

Reflecting the recent situation, a statement by the country's Directorate General of Civil Aviation, on Aug. 29 said the suspension of scheduled international commercial passenger flights to or from India has been extended till Sept. 30. However, international travel may be allowed on selected routes by the authorities on a case-to-case basis, it added.

"I think people are frustrated that they are not able to travel out of the country even after 1 year into the pandemic, there is some serious pent-up demand for travel, and this continual spate of travel ban extensions are weighing heavily on sentiment," a source with an Indian refiner said.

The pace of vaccination has picked up but it still leaves much to be desired, considering India's total population, sources said.

India's health ministry reported more than 350,000 active cases as on Sept. 1, with reported deaths hovering above 430,000. Total vaccination stood at over 650 million as of Sept. 1. That's roughly 46.5% of the total population that's been inoculated.

July data disappoints

India's jet fuel production extended further declines in July as refineries capped production of aviation fuels on underwhelming jet fuel demand, the latest data released by the Petroleum Planning and Analysis Cell showed.

According to the PPAC data, India jet fuel production in July fell 10.39% month on month to 604,000 mt. This marked the fourth consecutive decline since March, with production last seen lower in October when it was 548,000 mt.

According to company officials interviewed by S&P Global Platts in late July, the country's biggest state refiner, Indian Oil Corp., was running its nine plants at an average run rate of 91%, reflecting adjustment in the run as retail fuel demand is yet to recover from the impact of the second wave of the coronavirus pandemic in Asia's third-largest economy.

Still, August data showed signs of improvement. Based on preliminary data from India's state-owned refiners, sales of jet fuel increased by nearly 20% month on month in August, S&P Global Platts Analytics said Sept. 1.

"However, we are seeing an uptick of daily COVID-19 cases over the past week. A sharp resurgence of infections will dampen air traffic," JY Lim, advisor oil markets at Platts Analytics said.

Platts Analytics expects India's kerosene/jet fuel demand to rebound by 8% in 2021, but the demand will still be 40% below 2019 levels.

Jet fuel prices pressured

"I think we need to see borders reopening and allowing vaccinated citizens to travel freely before we can discuss the topic of aviation recovery," another India-based source said.

Meanwhile, the outlook for jet fuel demand also remains weak for Asia as a whole as passenger volumes continue to be dismal.

The Association of Asia Pacific Airlines, or AAPA, in a statement on Aug. 26 said that the number of international passengers carried by the region's airlines totaled 1.5 million in July, representing only 4.6% of the 33 million that flew in the corresponding month of 2019.

The bearishness on the aviation front has also pressured the FOB Singapore jet fuel/kerosene cash differential, which was assessed at a discount of 16 cents to the Mean of Platts Singapore jet fuel/kerosene assessment on Sept. 1, down 11 cents/b day on day, S&P Global Platts data showed.

In the derivatives market, the prompt month September-October timespread flipped into a contango structure of minus 1 cent/b on Sept. 1, falling 5 cents/b day on day, Platts data showed.

"The outlook for air travel is dependent on further progress with vaccinations across Asia and globally. Crucially, greater collaboration among governments on harmonized cross-border measures is necessary, in line with ICAO and WHO recommendations," Subhas Menon, AAPA director general said in a statement.