ANALYSIS: Jet fuel to remain grounded as India extends international flight ban

India's recent move to extend a suspension of international flight operations until end-June is set to further weigh on jet fuel demand and cap any significant gains in prices of the aviation turbine fuel, as the country faces the daunting task of accelerating its COVID-19 vaccination pace after the devastating second wave, industry sources told S&P Global Platts.

"The outlook for jet fuel demand in India is not looking good for the next three-four months. The confidence to travel extensively won't be back until the vaccination process is accelerated," said a senior official at a state-run refiner.

The extension of the international flight ban in India spells trouble for the sector, another source with an Indian refiner said.

A May 28 Twitter post by India's Directorate General of Civil Aviation said the competent authority had extended the suspension of scheduled international commercial passenger flights to or from India till 2359 local time June 30. International travel may be allowed on selected routes on a case-by-case basis.

The earlier suspension was until May 31.

The second wave of COVID-19 in the country has been so acute that it has already started to reverse what had been an improving trend in India's jet fuel market.

As of 0245 GMT June 3, India had 28.31 million confirmed infections with 335,102 deaths, the latest data from Johns Hopkins University showed.

India's aviation fuel demand tumbled 13.89% month on month to 409,000 mt in April, a five-month low, according to latest data from the Petroleum Planning and Analysis Cell, or PPAC. This was a manifestation of tepid domestic demand for aviation fuel and weaker jet fuel margins.

"India's demand for jet fuel is also extremely low due to the rising infections in the region," a Singapore-based trading source said.

Asia-Pacific regional airlines carried just 1.1 million international passengers in April, representing a mere 3.5% of passenger volumes recorded in the same month of pre COVID-19 times in 2019, according to the latest report by the Association of Asia Pacific Airlines, or AAPA.

"The emergence of different variants with higher transmissibility rates has deterred Asian economies from reopening their borders, with extended quarantine requirements further suppressing international travel demand," AAPA director-general Subhas Menon said.

Rough weather, refiner cuts

India's oil products demand fell 9.4% at 17 million mt in April from March volumes, and demand in May is expected to decline even further month on month, analysts said.

The average run for refineries in India was 97% in April compared with 99% in March, showed the latest survey of the country's oil ministry.

"Refiners in India have had to reduce utilization rates given the demand hit in the domestic market following the latest wave of COVID-19. May numbers are likely to show a larger impact on refinery operations, as this is the month when daily COVID-19 cases peaked," ING Economics said in a research note.

A refinery source echoed a similar sentiment.

"Indian refiners are already cutting back on jet production because demand is not great, and the COVID-19 spread is so rampant," he said.

"Looking ahead, I think that jet fuel demand will take an even bigger hit due to the monsoon season, which will affect travel also," he added.

India's kerosene/jet fuel demand in 2021 is expected to remain close to 30% below the level in 2019, according to S&P Global Platts Analytics.

Jet fuel prices have remained subdued on the bearish momentum.

"Indian Oil Corp. has slightly revised down jet fuel prices for the first half of June, as demand remains weak," the first refiner source said.

In Delhi, for instance, prices of jet fuel for domestic airlines have dropped to Rupees 64,118/kiloliters ($139.60/b) for first-half June from Rupees 64,770/kiloliter for second-half May, according to Indian Oil Corp.

The FOB Singapore jet fuel/kerosene cash differential remained in discount territory at the 0830 GMT June 2 close, widening 4 cents/b day on day. The FOB Singapore cash differential had previously flipped into positive territory May 3-17 on firmer demand from the US West Coast and leaner regional supply, but thereafter reverted to a discount May 18 on tepid demand, industry sources said.

In the derivatives market, the M1/M2 July/August Singapore jet fuel time spread was assessed steady day on day at minus 26 cents/b at the Asian close June 2. The time spread has been in a contango structure since Feb 3, 2020, and was last assessed at a backwardation on Jan. 31, 2020, at plus 48 cents/b, S&P Global Platts data showed.