Singapore — India's Nayara Energy has not seen any major disruption to its jet fuel exports despite global air travel disruptions due to the China coronavirus, but there could be an impact if the outbreak is not contained soon, CEO B Anand told S&P Global Platts in an interview.
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"Nayara mainly has long-term commitments for jet fuel," Anand said. "Structurally, we do not see major disruption to our jet fuel exports, but there could be an impact if this continues and spreads further."
If there is a hit to jet exports, Anand said an expected recovery in India's jet demand on the back of robust aviation growth may create opportunities for any surplus cargoes to be absorbed in the domestic market.
"At some point the epidemic will be contained; it could be a one-quarter, two-quarter story," he said. "In India, one is excited about the growth prospects that India offers for jet fuel demand. We are hoping to see a substantial increase in air traffic. There is sufficient capacity to absorb incremental supplies."
India's jet fuel demand posted an average annual growth of 10.5% between 2016 and 2018, but last year contracted 0.5% to 178,000 b/d, according to data from the country's Petroleum Planning and Analysis Cell and S&P Global Platts Analytics. The demand decline came on the back of an economic slowdown and the grounding of private carrier Jet Airways, once the country's largest commercial airline with a market share of close to 23%.
Platts Analytics expects India's jet fuel demand to grow by 7% in 2020 as the economy recovers, with growth in gross domestic product expected at 6.1%, up from 5% last year.
'CLOSELY WATCHING' CRACKS
Traders expect more downside pressure on jet fuel refining margins in Asia as airlines suspend multiple flight routes in the wake of the coronavirus outbreak.
"We are seeing weaker cracks, and it's a situation that we are closely watching," Anand said.
Both physical and paper jet fuel cracks against Platts Dubai crude benchmark tumbled below the psychological support level of $10/b last week as aviation fuel demand continued to slide in line with the growing number of flight cancellations and suspensions.
The FOB Singapore jet fuel/kerosene crack against front-month cash Dubai crude was the weakest Friday in 4½ years at $8.23/b. The crack spread was last lower August 6, 2015, at $7.83/b, Platts data showed.
POTENTIAL CRUDE DIVERSIONS
An expected slowdown in China's crude oil appetite also may prompt Middle Eastern and other key global crude suppliers to look for other markets in the near term, and India would be a logical alternative, Anand said.
Chinese state and independent refiners have slashed run rates and throughput levels amid faltering domestic fuel consumption in the wake of the coronavirus outbreak. Initial estimates show Chinese crude runs could be about 1 million-2 million b/d lower for February than originally expected, according to Platts Analytics.
"There will be opportunities for refiners like us and Reliance for some of these crudes coming our way, but it also depends to the extent India has committed itself for imports and how much incremental volumes it can absorb as the country's refiners have their own term contracts," he added.
The coronavirus has forced several countries to resort to stringent quarantine checks, limiting crew availability and causing delays in loading and delivery of cargoes in the tanker, dry bulk and container shipping segments as ships sit idle.
VLCC owners are earning around $19,000/d on the Persian Gulf-East Asia routes, about one-fifth of the $105,000/d earned at the beginning of the year. Daily earnings for LR ships are around $4,000-$7,000/d on the benchmark Persian Gulf-Japan route, down from around $18,000/d early last month.
A rate decline was already happening before the outbreak, and brokers, owners and charterers feel the spread of the coronavirus could make recovery all the more difficult.
"The freight market has come off, and with the freight market going down, it will affect the outlook for VLSFO [very low sulfur fuel oil]," Anand said.
Anand noted the outbreak could not have come at a worse time for commodity markets already reeling from trade disputes and geopolitical tensions, saying, "So, if there is further demand destruction because of the coronavirus, it will be alarming,"