Global petroleum trading companies are increasing exports of jet fuel from Asia to Europe and the United States, as widespread coronavirus vaccinations and relatively lower infection rates allow commercial travel to resume faster in Western countries.
Strong demand from the West has completely depleted surplus jet fuel stored on ships around Singapore, while refiners’ margins for aviation fuel – a major drag on overall profits during the COVID-19 pandemic – have shrunk. almost tripled since the end of March.
Asia exported around 417,000 barrels per day (bpd) of jet fuel to Europe and North America combined in April-May, nearly 32% more than 316,000 bpd for the February-March period, according to Reuters calculations based on data from oil analysis firm Vortexa.
Jet fuel volumes at floating storage facilities have consistently stood at zero over the past four weeks for the first time since March of last year, according to data intelligence firm Kpler.
There were around 313,000 barrels of jet fuel stored in ships in early May, already 90% less than the same time last year, according to data from Kpler.
At least 10 vessels, chartered by companies such as Saudi Arabian Aramco Trading, Royal Dutch Shell (RDSa.L), Chevron Corp (CVX.N) and Valero are currently in transit from South Korea to the United States, according to tracking data from ships carrying around 3.3 million barrels of jet fuel to be delivered this month.
“A resumption of air travel in the United States and Europe amid falling infection rates (coronavirus) and a possible relaxation of travel restrictions this summer, which contrasts with weak fundamentals in Asia, is expected support an expansion of jet fuel East-West near-term arbitrage, ”said Serena Huang, senior analyst for Asia at Vortexa.
But the strength of the East-West arbitrage also depends on inventory levels in the US and Europe, which suggests that the Asia-US arbitrage would be stronger in the short term than the Asia-Europe arbitrage, according to analysts.
“US aircraft inventories in May are comparable to pre-2019 pandemic average levels according to Energy Information Administration data, but Amsterdam-Rotterdam-Antwerp (ARA) aircraft inventories are still higher at pre-pandemic levels, ”said analyst Huang.
However, volumes to Europe are expected to increase gradually, as the further reopening of European markets for travel in the coming days is expected to stimulate demand.
“I think this volume of jet arbitrage may increase as Europe begins to open up and passengers start flying again,” said Kevin Wright, Kpler’s senior analyst for Asia-Pacific.
The outlook for aviation demand in Asia remains bleak as most countries continue to grapple with new waves of the pandemic. Some analysts believe it may take until 2022 for the region, with the exception of China, to see a substantial recovery.
Ships carrying jet fuel from South Korea to the United States for delivery in June:
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