Singapore — The Year of the Ox has failed to ring in Lunar New Year festivities for the Asian jet fuel market as a recent resurgence in COVID-19 infections led local governments to tighten border controls and reimpose containment measures, forcing regional airlines to scale back operations during one of the busiest travel periods.
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The Chinese government has asked people to stay home for the holiday season in a bid to minimize coronavirus risks, with last year's Lunar New Year travel season thought to have played a big role in spreading the virus.
China's National Health Commission imposed new rules that require people returning to rural areas to produce a negative COVID-19 test taken within seven days prior to traveling, and to observe home quarantine for an additional 14 days upon arrival.
"The recent resurgence of COVID-19 in the region has led to tighter travel restrictions in some countries. We have seen a sharp drop of domestic flights in some countries, including China and Japan. China's domestic air traffic in early February dropped to 37% below pre-COVID levels, having recovered fully since August, while Japan's domestic traffic was down 65%, deteriorating from minus 45% in January," said JY Lim, oil market adviser at S&P Global Platts Analytics, on Feb. 11.
Airlines cut back
Aviation consultant OAG said in a Feb. 11 report that the big three Chinese carriers have reduced flights by a considerable proportion.
"China Eastern has removed most flights from its schedule (13,600), equating to 24% fewer flights than last month. China Southern is not much further behind, with 19% fewer flights than in January and Air China is at 14% fewer flights," OAG said in the report.
"The impact of the reductions in China's capacity is evident across the largest of China's airports which remain in the Top 20, although further down the rankings. Beijing has fallen from 3rd place to 11th, whilst Shanghai Pudong is down from 11th to 18th," OAG added.
Global aviation data firm Cirium reported on Jan. 26 that the weekly average for daily domestic passenger flights fell to 8,600 on Jan. 25, marking a 31.75% fall from the peak of the recovery in early October 2020, when more than 12,600 flights operated.
"China's domestic aviation market appears to be entering a renewed slump as the February 12th Lunar New Year approaches, raising the prospect of sharply curtailed travel demand over the holiday period," Cirium said.
OAG added that the greatest decrease in the last month has been seen in the Asia-Pacific region, where carriers have taken 17.3 million seats out of schedule. Much of this came from northeast Asia, which saw an 18% month-on-month reduction, or 14.2 million fewer seats. Most of the reductions came from China, which was down 11.9 million on the month, and Japan, which was down 1.5 million on the month.
Curtailed flights and reduced domestic consumption have also resulted in higher jet fuel exports from China. Traders estimated Chinese exports to be 300,000-350,000 mt in February, up from the previous two months, when outflows from the country in December 2020 and January were about 200,000 mt.
"There are lockdowns in several Chinese cities and people are discouraged to travel during the holiday season. There's more [jet fuel] exports because there are less flights. There's excess," said a Singapore-based regional trader.
Traders said although February volumes were higher than the preceding months, it was still lower compared with previous years, when monthly outflows were typically above 1 million mt.
Jet still in discount
Robust heating demand from northeast Asia due to a colder winter pushed the FOB Singapore jet fuel/kerosene cash differential to a near-premium territory at minus 1 cent/b to the Mean of Platts Singapore jet fuel/kerosene assessment on Feb. 10. However, coronavirus-induced troubles countered the bullish sentiment and dragged the cash differential down to MOPS minus 12 cents/b on Feb. 11, S&P Global Platts data showed.
Also evidencing the tepid sentiment, the balance-month February-March jet fuel/kerosene derivative spread widened 9 cents/b day on day at minus 18 cents/b at the Asian close on Feb. 11, Platts data showed.
Further down, the Q2-Q3 quarterly jet fuel/kerosene spread -- another indication of near-term sentiment -- widened its contango to minus 28 cents/b at the Feb. 11 Asia close, down 9 cents/b day on day.