Asian jet fuel margins turn positive amid mild recovery

Asia-Pacific jet fuel refining margins have turned positive for the first time in a month, amid a slight recovery in domestic flight activity and limited exports of the aviation fuel.

Margins turned positive at a $0.58/bl premium to Dubai crude on 18 May and further firmed to a $2.01/bl premium yesterday. The last time they were positive was on 20 April at a $0.38/bl premium. An unprecedented slump in jet fuel demand because of the impact of the Covid-19 pandemic had sent margins to an all-time-low of -$4.58/bl on 5 May.

A slight recovery in domestic flight activity is supporting jet fuel demand, said market participants. Budget airline AirAsia resumed its scheduled domestic flights in Malaysia at the end of April, with it resuming several flights from its Indonesia arm from 1 June. Australia's Qantas and its budget airline subsidiary Jetstar announced in mid-April that they will increase passenger flights from 105 to 164 a week as part of the government's minimum domestic and regional network. Air New Zealand has started operating flights to the majority of its domestic airports. Vietnam Airlines said its domestic flights will possibly fully resume by June, although market participants estimate that domestic flights make up about 30pc of total flights operated in the country.

Margins could have also firmed because of the large volume of jet fuel currently in onshore and floating storage, creating a supply tightness although demand is still poor. Singapore's onshore middle distillate stocks rose to a 3½-year high of 14.933mn bl in the week to 15 April and have remained above 14mn bl.

Limited jet fuel exports because of reduced refinery runs and weak regional demand have also lent some support. Shipping fixtures show India's May jet fuel exports at just 120,000t (30,000 b/d), while market participants estimate volumes around 200,000-300,000t that is still lower than March exports of 488,000t, according to data from the country's oil ministry. China's jet fuel exports in May are expected to be limited as refiners reduce jet fuel yields and most product is in storage.

But any full jet demand recovery might still be years away. The International Air Transport Association said yesterday that international air travel demand might not return to 2019 levels until 2023-24 because of more severe travel restrictions on long-haul routes and the need for governments to open borders.

by Sarah Giam