Singapore jet fuel/kerosene time spread hits 2-year high on aviation recovery, heating demand

The Singapore front-month November-December jet fuel/kerosene time spread reached a more than two-year high Oct. 28 amid demand recovery in the downstream aviation sector and kerosene stockpiling for winter heating.

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 higher Oct. 11, 2019 at plus 49 cents/b, S&P Global Platts data showed.

The M1/M2 spread has been mostly in contango since 2020 as pandemic-related border restrictions grounded air travel and, in turn, demand for jet fuel, but regional aviation fuel demand has been rebounding as countries ease travel restrictions.

Australia's easing of COVID-19 restrictions as it prepares to gradually reopen domestic and international borders to fully vaccinated citizens and permanent residents is likely to lift jet fuel demand in coming weeks, market sources said.

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

Asia-Pacific 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 pre-pandemic September 2019, data from the Association of Asia Pacific Airlines showed.

The international passenger load factor averaged 33% of pre-pandemic levels in September, with available seat capacity at 13.9%, the AAPA data showed. Asia-Pacific airlines flew 11.19 million passengers over 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.

"As vaccination rates increase, more governments are moving away from zero-COVID approaches toward a risk-managed approach in favor of relaxation of border restrictions for vaccinated travelers," AAPA Director General Subhas Menon said.

Rebounding aviation fuel demand coincides with tightening supplies of jet fuel/kerosene as countries, including Japan and South Korea stock up for the peak winter heating season.

Reflecting the demand recovery, the FOB Singapore jet fuel/kerosene cash differential was assessed at a premium of 17 cents/b to the Mean of Platts Singapore jet fuel/kerosene assessment Oct. 28, strengthening from a discount of 2 cents/b at the start of the month, Platts data showed.

Further along the derivatives curve, the Singapore Q1-Q2 jet fuel swap spread -- an indication of medium-term sentiment -- was assessed at plus $2.21/b Oct. 28, up 51.37% from plus $1.46/b at the start of the month.