Rising vaccination rates in the Asia-Pacific region may spell good news for regional jet fuel demand at a time when the recovery of its aviation sector lags that in the US and Europe.
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While travel optimism in the US and Europe has provided support to jet fuel/kerosene markets in the West in recent months, the rebound has been weaker in the Asia-Pacific region due to uneven demand recovery resulting from a slower vaccination rollout, particularly in emerging countries, industry sources told S&P Global Platts.
"The arbitrage to the West is open so we are still seeing barrels going westwards. Regional demand recovery [in the Asia-Pacific] is still slow," a trader said.
However, an International Air Transport Association survey of 4,700 people in 11 markets worldwide including Australia, India, Japan and Singapore in September indicated that passengers are keen to resume traveling and are confident that the risks of COVID-19 could be effectively managed.
"People want to travel; 86% expect to be traveling within six months of the crisis ending. With COVID-19 becoming endemic, vaccines being widely available and therapeutics improving rapidly, we are quickly approaching that point in time," IATA director general Willie Walsh said in a statement Oct. 5.
Regional airlines gear up
Qantas Airways has said it is advancing the restart of its international flights to Nov. 14 following the federal government's announcement that Australia's borders will open in November.
"We'd already sold out some of our international flights for December and seen strong demand on flights to and from London and Los Angeles, so we're confident there will be a lot of interest in these earlier services," Qantas Group CEO Alan Joyce said in a statement.
Singapore has announced it is opening its borders to more countries for quarantine-free travel. Vaccinated travelers from the US, UK, Canada, Denmark, France, Italy, the Netherlands and Spain will not be required to quarantine from Oct. 19 if they pass COVID-19 tests.
This expansion was being conducted in a "cautious and step-by-step manner" and comes after the "experience and confidence gained" from the first two vaccinated travel lanes with Brunei and Germany that opened Sept. 8, the Civil Aviation Authority of Singapore said in a statement Oct. 9.
However while the vaccinated travel lanes could spur and increase in travel demand and, in turn, an increase in jet fuel requirements, "I expect that regional demand will still remain uneven," a trader said.
The Singapore Airlines Group said its latest data showed passenger capacity -- measured in available seat-kilometers -- remained steady month on month at around 32% of pre-pandemic levels in August, while its passenger traffic -- revenue passenger-kilometers -- rose 7.4%.
Hong Kong's flag carrier Cathay Pacific Airlines said it carried 135,353 passengers in August, an increase of 278.4% year on year.
"While the COVID-19 situation continues to present us with considerable challenges, we did see some improvement in the performance of our passenger business in August," Cathay Pacific's Chief Customer and Commercial Officer Ronald Lam said in a statement.
Thailand has also extended its "Sandbox program" to enable fully vaccinated international travelers to visit multiple local destinations without needing to quarantine.
Global revenue passenger kilometers or RPKs were estimated to rise 18% year on year in 2021 to reach 40% of pre-pandemic levels. But ultimately, the pace of vaccine rollouts and government policies will determine the course of international traffic in 2022, while domestic travel stays strong, the IATA said in a report Oct. 4.
"Countries in the [Asia-Pacific] region are pushing forward with plans to reopen by allowing vaccinated people to travel, which will provide a boost to jet fuel demand in Q4," JY Lim, advisor oil markets at Platts Analytics said.
Together with seasonal heating demand, this will likely see Q4 kerosene/jet fuel demand rise by 650,000 b/d from Q3 to 2.3 million b/d, he said. For 2021, Asia's kerosene/jet fuel demand is forecast to grow by 3.4% but remain 33% below 2019 levels, he added.
The positive outlook for jet fuel demand was reflected on the FOB Singapore jet fuel/kerosene cash differential, which was assessed at a premium of 15 cents/b to the Mean of Platts Singapore jet fuel/kerosene assessments Oct. 12, strengthening from a discount of 2 cents/b at the start of the month, Platts data showed.
Further along the derivatives curve, the Q1-Q2 2022 time spread -- an indication of medium-term sentiment -- was assessed up 7 cents/b on the day at plus $2.12 cents/b Oct. 12.