Asian jet fuel recovery stays subdued as omicron-related fears persist

COVID-19 continues to impact air travel as many Asian countries pursue restrictions and movement checks during the Christmas and New Year holiday season to stem the spread of the omicron variant of the coronavirus, thwarting hopes of any sustained recovery in jet fuel in the near term.

Hopes of a medium-term recovery persist, however, as more passengers may book flights when quarantine and border restrictions ease further.

"The jet [fuel market] is very sensitive, demand will be hit if there are new announcements on [travel and border] policies," a Singapore-based trader said Dec. 30.

A circular issued on Dec. 9 by India's Directorate General of Civil Aviation stated that "the competent authority has decided to extend the suspension of scheduled international commercial passenger services to/from India till 23:59 hours IST of Jan. 31, 2022."

The restriction shall, however, not apply to international all-cargo operations and flights specifically approved by the DGCA, it said.

Singapore has taken proactive and preemptive steps to manage the inflow of Vaccinated Travel Lane, or VTL, to curb the spread of the omicron variant. The Civil Aviation Authority of Singapore said in a statement on Dec. 22 that "with effect from Dec. 22, 23:59 hours (Singapore time), there will be no new ticket sales on designated VTL flights for entry into Singapore from all VTL countries until Jan. 20 2022, 23:59 hours (Singapore time)."

"For entry into Singapore on designated VTL flights from January 21, 2022, CAAS will cap the total ticket sales at 50% of the allocated quota," it said.

Hong Kong's persistent 'zero-COVID' strategy has also impacted travel there, with its flag carrier Cathay Pacific Airways planning to make drastic changes to its flight schedule, including cancellations, according to media reports.

"As we approach the end of 2021, we continue to face significant challenges, especially for our travel business. The emergence of the omicron coronavirus variant has had an impact on sentiment for travel over the holiday season," Ronald Lam, chief customer and commercial officer at Cathay Pacific said in a statement Dec. 14.

"Furthermore, our ability to operate flights as planned remains affected in light of the latest travel restrictions, including the Hong Kong SAR government's tightening of quarantine requirements for many of our major markets and the subsequent operational constraints," Lam added.

Hopes of revival

At the 0830 GMT Asian close Dec. 30, the FOB Singapore jet fuel/kerosene cash differential fell to negative territory at minus 3 cents/b to the Mean of Platts Singapore jet fuel/kerosene assessment, losing 6 cents/b on the day and 55 cents/b in the span of just five trading days, S&P Global Platts data showed. The cash differential was assessed at plus 52 cents/b to MOPS Dec. 22.

The last time FOB Singapore spot barrels were traded at a discount was at minus 1 cent/b on Oct. 6.

"We are already seeing the impact being priced into the cash differential... it's been coming off since last week. But it could be a combination of Omicron and thin demand during the lull year end season," an industry source said.

"I think [jet fuel prices] might have hit a low this week. The market is able to react quicker than before, compared to when the pandemic first hit us last year," the source said.

Despite the overarching gloomy outlook, several sources remained optimistic and said that jet fuel prices will likely rebound in the new year when trade activity returns to normal after the holiday season.

"Currently, we expect Asia Pacific kerosene/jet fuel demand to grow year by 520,000 b/d on the year in 2022, after a sharp contraction of over 1 million b/d in 2020 and a modest decline of 30,000 b/d anticipated for 2021," said JY Lim, advisor oil markets at S&P Global Platts Analytics.

Still, regional refiners are likely to keep production levels steady in the near term, sources said.

"Jet [fuel] yield is already so low; most producers are keeping [jet fuel] output at a minimal level. I don't see how it [yield] can get much lower," a regional refiner said Dec. 30.

The International Air Transport Association, which represents some 290 airlines comprising 83% of global air traffic, has called for governments to follow the World Health Organization advice and immediately rescind travel bans that were introduced in response to the omicron variant of the coronavirus.

In a statement on Dec. 22, IATA said that the aircraft cabin remains a very low-risk environment for contracting COVID-19 even though omicron appears to be more transmissible than other variants in all environments.