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Factbox: Asian jet fuel market tests new lows as carriers expand flight restrictions

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Factbox: Asian jet fuel market tests new lows as carriers expand flight restrictions

  • Author
  • Ng Jing Zhi    Clarice Chiam    Takeo Kumagai    Su Yeen Cheong    Gawoon Philip Vahn
  • Editor
  • Agamoni Ghosh
  • Commodity
  • Oil
  • Topic
  • Coronavirus and Commodities

Major airlines in Asia and the Middle East have expanded flight restrictions to include countries beyond China, as fears of a further spread of the contagion continues to grip global air travel, putting more pressure on regional jet fuel refining margins and price differentials.

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The suspension of a fresh wave of flights to other countries deemed as high-risk areas will likely further hammer demand in the already beleaguered air travel sector, pushing jet fuel prices to test near-record lows.

Globally as of 0808 GMT, the number of confirmed cases rose to 76,790, with 75,467 of those in China, 204 in South Korea, 97 in Japan, and 85 in SIngapore, according to Worldometers.info, which collects statistics and data from the World Health Organization and other agencies.

Outside of mainland China, and excluding the Diamond Princess cruise ship, Japan, Singapore, South Korea and Hong Kong have the next highest numbers of confirmed COVID-19 cases at 87, 84, 82 and 65 respectively.

Price

**With demand for jet fuel taking a beating as airlines pare back flights, the cash differential for jet fuel cargoes loading from Singapore was assessed at minus 26 cents/b at the Asian close on Thursday, sharply lower than January's average of 25 cents/b.

**In the derivatives market, the March-April swap spread was assessed at minus 36 cents/b Wednesday, marking the widest contango structure since minus 38 cents/b on April 15, 2019. The spread was pegged at minus 35 cents/b Thursday.

**The FOB Singapore jet fuel physical crack spread against front-month cash Dubai tumbled to $8.24/b at 0830 GMT on Wednesday, within striking distance of the last low which was on January 31, 2020, at $8.22/b. The crack spread was assessed at $8.61/b Thursday and averaged $9.24/b so far this month, sharply lower than the $11.10/b average in January and $12.85/b in December last year.

Trade-flow

**S&P Global Platts Analytics said its worst-case scenario shows a drop of 1.125 million b/d in global jet fuel demand in February; its best-case scenario shows a drop of 876,000 b/d in for February.

**The US Energy Information Administration cut its outlook for China's liquid fuel demand between February and April to 14.8 million b/d, down by 400,000 b/d compared with last month's outlook.

**Platts Analytics forecasted that China will cut an unprecedented 2.6 million b/d in refinery runs in February in an attempt to offset a colossal oil demand decline, likely to approach 2.9 million b/d over same period.

**"A demand decline in excess of run cuts suggests inventory building, which has been confirmed in the most recent data, along with a possible pick up in Chinese product exports to clear the imbalance," Platts Analytics said in a note.

Infrastructure

**Singapore Airline and its regional unit SilkAir will temporarily cut more than 700 flights to destinations including the US, Europe, Asia, Australia and New Zealand over February 24 to May 30. Singapore Airlines has also suspended flights to China, adding that "minimum connectivity" to several key cities will be maintained.

**Thai Airways cut its daily flight capacity to/from Singapore and Seoul by 20%, from five to four per week over February and March. The airline has also reduced the number of flights to/from several destinations in China, including Beijing and Shanghai, extended till March from the initial plan February.

**Japan's All Nippon Airways said Thursday it will additionally cut its flights to China from February 23 and its number of weekly flights to China will drop to 114 flights by March 1, down 65% from 330 before the outbreak due to massive booking cancellations following the coronavirus outbreak. ANA's flight reductions cover Wuhan, Beijing, Shanghai, Qingdao, Dalian, Hangzhou, Xiamen, Shenyang, Guangzhou, Chengdu and Hangzhou.

**Japan Airlines has slashed its number of flights to China to 39 a week, down 60% from 98 flights prior to its series of flight reductions from February 6. JAL's weekly flights to China will fall further to 34 as of February 26, down 65% from the level before its flight service reductions. Starting on March 1, JAL will also suspend one of its two daily flight services to Busan as well as suspending a daily flight service to Seoul in South Korea. It will also cut a number of its flights to Hong Kong and Taipei in Taiwan from February 21 and March 5 respectively.

**Hong Kong airline Cathay Pacific and its subsidiary Cathay Dragon cut passenger capacity by 40% for February and March, including 90% reduction of flights to/from China until March. The airline also said that flight capacity would likely be cut in April as well. The group also suspended flights to London Gatwick, Rome, Washington DC, Newark, Male, Davao, Clark, Jeju, Taichung, and all mainland China cities with the exception of Beijing, Shanghai, Chengdu and Xiamen until March 28.

**Korean Air suspended its flight from Incheon to Wuhan until March 27, and will further reduce flights to China.

**Another South Korean carrier Asiana Airlines temporarily cut services and routes to China -- Beijing, Guangzhou, Shanghai, Tianjin and Shenyang -- and Hong Kong. Flights to China account for 20% of its sales.

**Taiwanese-based carrier China Airlines suspended more than 63 daily flights to Hong Kong, Japan, Singapore, Vietnam, South Korea and several destinations in China including Wuhan, the epicenter of the coronavirus outbreak.

**Middle East's largest carrier Emirates has reduced its flights into China until early March, and would be deploying its Boeing 777 instead of A38 for flights between Dubai and Beijing, Guangzhou and Shanghai.

**Malaysia Airlines suspended flights to/from Kuala Lumpur to Hong Kong, Shanghai and Beijing over February and March. The carrier also canceled services to/from Kota Kinabalu to Shanghai from February 18 until further notice.

**Etihad Airways suspended all flights to and from China, with the exception of Beijing until further notice

**Qatar Airways canceled all flights to Beijing, Shanghai and Guangzhou until February 29, while services to Hangzhou, Chongqing and Chengdu are halted until March 31.