COVID-19 omicron leaves Asian jet fuel recovery dangling

The new COVID-19 variant omicron has unleashed greater uncertainty for air travel as many Asian countries unfurl new rules and movement checks to stem the spread of the virus, dashing hopes of any sustained near-term recovery in jet fuel demand.

"The market was hopeful of December-January travel to pick up prior to the discovery of the omicron variant, but it seems to be very uncertain now," an industry source said.

Countries have responded by implementing stricter measures, including extending quarantine requirements, increasing COVID-19 testing, and limiting or altogether banning entry from African and selected countries, which will impact travelling, he added.

India has likely deferred plans to resume regular international flights from Dec. 15, thwarting hopes of a return to normalcy after a long hiatus. The country suspended flights around March 2020 as the pandemic hit many countries worldwide.

A circular by India's Directorate General of Civil Aviation issued on Dec. 1 stated: "In view of the evolving global scenario with the emergence of new variants of concern, the situation is being watched closely". An appropriate decision regarding the effective resumption date of scheduled commercial international passenger flights will be notified in due course, it added.

Singapore has deferred its plans for quarantine-free vaccinated travel lane arrangements with Qatar, Saudi Arabia and the United Arab Emirates, which were initially scheduled for Dec. 6.

Hong Kong has, from Dec. 6, added Singapore and Iceland to its list of high-risk countries after omicron variant infections were detected there. It has also introduced additional requirements for passengers travelling from overseas countries and Taiwan transiting through Hong Kong.

The Philippines and Indonesia have also imposed additional travel restrictions, while Vietnam's Ministry of Health has urged local authorities to temporarily halt flights to and from certain countries to stymie the spread of this variant.

Thailand has banned travelers from eight African countries starting December, while Japan has, effective Nov. 30, suspended the entry of new, non-resident foreign nationals, including students on educational travel.

Demand uncertainty

Over January-October, Asia-Pacific airlines flew 12.479 million passengers, down 81.6% year on year, and just 3.9% of the 31 million passengers recorded over the same period in 2019, according to data by the Association of Asia Pacific Airlines on Nov. 25.

Demand uncertainty remains a key concern as the transmissibility of the variant and its severity are still being assessed, industry sources said.

"If demand remains constant, global jet supply looks relatively tight. We are kind of seeing that in the prompt cash markets within each region," a trade source said.

"But with the risk on border closures and snap demand losses, these things can quickly change so it's a very unclear path forward for now," he added.

At the 0830 GMT Asian close Dec. 6, the FOB Singapore jet fuel/kerosene cash differential was assessed at plus 38 cents/b to the Mean of Platts Singapore jet fuel/kerosene assessments, down 12 cents/b day on day, Platts data showed.

"The market liquidity is even worse now with the travel advisories issued. We don't know the exact market level [of prices] and we are not sure if there are going to be more measures going forward," a refiner source said.

In South Korea, where inbound travelers including returning Korean nationals are required to quarantine for 10 days, refiners said their run rates could be affected depending on the near-term demand trend for aviation fuel.

Hoping for brighter skies

"Governments are responding to the risks of the new coronavirus variant in emergency mode causing fear among the traveling public," IATA's Director General Willie Walsh said in a statement on Nov. 26.

"As quickly as possible we must use the experience of the last two years to move to a coordinated data-driven approach that finds safe alternatives to border closures and quarantine," Walsh added.

The impact of omicron, if it spreads wildly, will most likely be felt in H1 2022 as governments in the region tighten measures to contain the spread of the new variant, JY Lim, advisor oil markets at S&P Global Platts Analytics, said.

"Currently, we expect Asia-Pacific kerosene/jet fuel demand to grow year on year by 600,000 b/d in 2022, after a sharp contraction of more than 1 million b/d in 2020 and a modest increase of 30,000 b/d anticipated for 2021," Lim said.

"Though we are likely to lower our growth outlook for next year, especially in the first half due to travel restrictions, aviation demand is expected to rise as governments generally have a higher degree of tolerance for COVID-19 infections and will look for ways to resume travel activities in a safe manner," Lim added.