ANALYSIS: Australia's jet fuel demand looks up as it readies for border reopening

Australia's jet fuel demand is set to accelerate as Qantas and Jetstar gear up for an accelerated border reopening while COVID-19 vaccination rates hasten, a move which is set to significantly increase travel demand after a long hiatus, sources said.

This comes after the Federal and New South Wales governments announced that international borders would reopen from Nov. 1, and the decision by the NSW Government to remove quarantine requirements for fully vaccinated arrivals.

"This will add more flights and we should see more demand during the holiday season," a Singapore-based trader said.

As part of the restart, Qantas and Jetstar will bring forward the resumption of more international flights to popular destinations from Sydney and operate regular flights to New Delhi, the first commercial flights for Qantas between Australia and India in almost a decade, Qantas said on its website Oct. 22.

Discussions have commenced with the NSW Government about supporting some of Qantas' international services to Sydney through its recently announced Aviation Attraction Fund, the national carrier said.

Discussions are also underway with the Indonesian Government about welcoming fully vaccinated Australians back to Bali with reduced or no quarantine requirements, which would mean the resumption of Jetstar and Qantas flights from Sydney to the holiday island months earlier than scheduled, it added.

This comes in addition to routes already on sale from Sydney to London and Los Angeles.

Bookings on these routes have been extremely strong, with more than 10 additional return services added between Sydney and London due to demand from Australians coming home in time for Christmas, Qantas said.

Flights to Honolulu, Vancouver, Tokyo and New Zealand are still scheduled to commence from mid-December, with other destinations to restart in the new year.

In line with current Federal Government requirements, these initial flights are limited to Australian citizens, permanent residents and their immediate families and parents.

"While these flights will initially be for Australians and their families, we expect tourists from Singapore, South Africa and India to take advantage of these flights once borders reopen to international visitors, which is great news for the industry," Qantas CEO Alan Joyce said in the same statement.

Meanwhile, the restart of flights is also set to boost Australia's jet fuel imports, sources said. Australia's imports of jet fuel had slumped 45.4% month on month and about 34% year on year to 1.06 million barrels in August, although import volumes between January and August were nearly stable at 12.86 million barrels, compared with 12.98 barrels in the same period in 2020, showed latest data from the country's Department of Industry, Science, Energy and Resources.

Asia-Pacific regional prospects

Asia-Pacific regional airlines carried 1.2 million international passengers in September, down from 1.4 million in August and equating to just 4.1% of the 30 million passengers flown in prepandemic September 2019, showed data from the Association of Asia Pacific Airlines.

The international passenger load factor averaged 33% of prepandemic levels in September, with available seat capacity at 13.9%, the AAPA data showed. Asia-Pacific regional airlines flew 11.19 million passengers in January-September, down 83.2% year on year.

However, there were encouraging signs of an increase in ticket bookings in markets where restrictions have eased, according to the AAPA.

"Jet fuel/kerosene demand is also improving, especially because of the winter stockpiling of kerosene," another trader said.

Regional supply of jet fuel/kerosene typically tightens toward the end of the year amid reduced exports from Japan and South Korea as these countries begin to stockpile ahead of the peak winter season, sources said.

The M1/M2 jet fuel/kerosene spread widened 2 cents/b day on day to plus 40 cents/b at the 0830 GMT Asian close Oct. 28, and was up 42 cents/b from minus 2 cents/b at the start of the month. The spread was last wider Oct. 11, 2019, at plus 49 cents/b, S&P Global Platts data showed.

"Countries in the [Asia-Pacific] region are pushing forward with plans to reopen by allowing vaccinated people to travel, which will provide a boost to jet fuel demand in Q4," said JY Lim, advisor oil markets at S&P Global Platts Analytics.

Together with seasonal heating demand, this will likely see fourth-quarter kerosene/jet fuel demand rise 650,000 b/d from the third quarter to 2.3 million b/d, he said. For 2021, Asia's kerosene/jet fuel demand is forecast to grow 2.6% but remain nearly 34% below 2019 levels, he added.