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India's jet fuel demand set to be hit by sharp surge in COVID-19 infections

Highlights

Many countries ban flights from India

Domestic travel to also drop as COVID-19 fear grips

Emerging travel bubbles temper Indian infections spike impact

Singapore — India's jet fuel demand is expected to succumb to the latest headwinds -- the mutant COVID-19 variant -- as many states in the country impose lockdowns and countries worldwide ban flights, or restrict movements, to and from the South Asian nation to curb the spread of the variant.

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"ICRA [Investment Information and Credit Rating Agency] continues to maintain a negative credit outlook on the Indian aviation industry. The outlook reflects ICRA's view that the financial performance of Indian airlines is likely to remain weak in the near-to-medium term amid weak air traffic," the agency said recently.

The US, UK, Singapore, Kuwait, Canada, France, Australia are among some of the counties that have recently banned flights from India or imposed other restrictions due to the unprecedented spike in COVID-19 cases in the country as it battles an acute shortage of oxygen cylinders and medical supplies, including vaccines.

"The situation in India is really bad now, and I suppose more international flights will be badly hit due to this as nations want to contain the spread of the virus," a Singapore-based refining source said May 3, adding that market sentiment was already hurt.

Reflecting the recent situation, a twitter post by the Directorate General of Civil Aviation, Government of India, on April 30 said the suspension of scheduled international commercial passenger flights to or from India had been extended till May 31. However, international travel may be allowed on selected routes by the authorities on a case to case basis, it added.

While lockdowns and curfews have been imposed regionally, the government of Indian Prime Minister Narendra Modi has abstained from implementing a nationwide lockdown so far this year. This comes after last year's nationwide lockdown battered the economy severely.

According to various media reports, the US' pandemic advisor Anthony Fauci, however, has recently suggested that India go under lockdown for several weeks to arrest the surge in cases.

This could be a possibility, should the situation not improve even as aid is rushed from various nations across the globe to alleviate the situation, sources said.

India's health ministry reported more than 300,000 new COVID-19 cases for a 12th straight day on May 3, taking total cases to almost 20 million.

India's April jet fuel demand decimated

India's jet fuel demand registered a 12-month high of 475,000 mt in March, rising 9.7% from a month ago, according to the latest data from the Petroleum Planning and Analysis Cell.

The PPAC data released April 12 showed that India's jet fuel demand was last higher in March 2020, at 483,000 mt. Year-to-date, India's jet fuel demand registered at 1.35 million mt, down 561,000 mt, or 29.35%, from a year ago.

While heightened demand was attributed to rising domestic flight capacity in the country, domestic flights could become a casualty too, should a nationwide lockdown come into play, sources said.

"I think demand outlook from India should be lower moving ahead," a trading source said.

"April was a bad month as they saw a spike in infection rates, so maybe [international] flights will be impaired, but on the domestic front, I think we should also see lower numbers as the death toll is rapidly rising, and I think people will think twice about traveling and contracting the new variant of the virus," he added.

"We have to assume that a April 2020 worst case scenario of 90% or more of flights being grounded is now 'possible', but this depends on how the virus and government policy develops," Alexander Yap, senior analyst at S&P Global Platts Analytics said.

Prices subdued as travel fear looms

International passenger markets remained weak due to ongoing border restrictions, particularly in the Asia-Pacific region, exacerbated by the uneven progress in vaccination rollouts and the resurgence in COVID-19 transmissions in some countries, particularly India, the Association of Asia Pacific Airlines said in an April 29 report.

This comes as some positive news of air bubble travel arrangements elsewhere has been tempered by the recent sharp rise in infections in India, lending some volatility to jet fuel prices.

Jet fuel prices were seen in negative territory as a result of the rising COVID-19 infection rate. At the 0830 GMT Asian close on May 3, the prompt swap time spread remained in a contango structure, meaning that jet fuel prices are weaker and unable to command a premium at the prompt, at minus 6 cents/b. The prompt swap time spread was last backwardated on Feb. 4, 2020 at plus 15 cents/b, Platts data showed.