South Korean refineries cut 2021 term jet fuel supplies
South Korean refiners have cut the volume of jet fuel being offered for term supplies this year with renewed uncertainty about future air travel demand.
The refiners, including SK Energy and GS Caltex, have possibly not yet settled any 2021 jet fuel term deals, while Hyundai Oilbank has reduced the volume it offered for term supplies this year, said market participants. Refiners could instead be offering jet fuel cargoes on a spot basis, said traders.
Hyundai Oilbank could have settled a jet fuel term deal with Saudi Arabian state-controlled Saudi Aramco's trading arm ATS by supplying approximately one 300,000 bl Medium Range (MR) cargo each month, said traders. The details of the pricing and counterparties could not be confirmed with the companies involved. Hyundai Oilbank last year supplied around 2-3 MR cargoes of jet fuel through term contracts.
Refiners are reluctant to negotiate jet term supplies as the demand outlook remains uncertain, pressuring short-term margins. Asia-Pacific jet fuel refining margins, or fob Singapore jet fuel swaps against Dubai crude values, narrowed to $3.11/bl on 7 January from $4.57/bl on 7 December. They averaged $4.66/bl in December, far from the pre-pandemic average of $12.12/bl in January 2020.
The recent escalation in Covid-19 cases and emerging variant strains have resulted in the reimposition of stricter travel restrictions by several countries. The short-term outlook for the airline industry remains extremely challenging, said the director-general of the Association of Asia Pacific Airlines Subhas Menon. The International Air Transport Association does not expect global passenger demand to return to pre-pandemic levels until 2024, with capacity this year expected to be 43pc below 2019.
Other northeast Asian refiners, including Taiwanese private-sector refiner Formosa and Chinese private-sector firm Hengyi, have also not concluded any jet fuel term contracts for at least first-half 2021. Formosa earlier said it plans to skip term negotiations for oil product term supplies for this year's first half because of lower refinery run rates and uncertainty in the market because of the Covid-19 pandemic.
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