Asia’s jet fuel refining margins are on track to double by the end of 2021 from the previous year, but traders and analysts say a recovery in aviation demand to prepandemic levels could still be years away.
Just as vaccinations and reopening of national borders raised hopes for a pickup in air travel, the highly contagious COVID-19 Omicron variant emerged last month, prompting governments to impose lockdowns and travel curbs again.
“It will take time for jet demand to recover to 2019 levels; we are probably looking at the middle of the decade, late 2024 or early 2025,” said Richard Gorry, managing director at consultancy JBC Energy Asia.
Airlines globally trimmed their capacity in recent weeks, removing 13.5 million seats from the January to March schedule this week, aviation data firm OAG said.
The capacity, which stood about 35 per cent higher this week from a year earlier, was still 23.2 per cent lower compared with the corresponding period in prepandemic 2019, OAG data showed.
Scheduled capacity in China, Asia’s biggest aviation market, remains 13.9 per cent behind 2019 with little signs of it recovering above that level, OAG said.
In response to the weaker outlook for jet fuel, the International Energy Agency (IEA) has lowered its forecast for oil demand this year and the next by 100,000 barrels a day each.
A South Korean trader said aviation demand might take until the middle of the decade to return to prepandemic levels, as countries impose travel restrictions in efforts to halt the spread of the Omicron variant.
“The repeated show-up of new variants and their speedy spread out are a headache,” said the trader, who declined to be named.
Asia’s jet fuel margins have averaged US$6.82 a barrel over Dubai crude so far this year, buoyed by a more than 30-per-cent rise in the past three months, but they are still 12 per cent lower compared with their five-year seasonal average for December.
They averaged US$3.02 in 2020, as the worst of the pandemic hammered them into negative territory.
Analysts expect any further upside to be limited and the cracks to average under $12 a barrel in 2022.
With conferences and trade shows remaining mostly virtual, and closed offices limiting corporate visits, business travel remains the biggest laggard, but some industry players believe there is pent-up demand for business travel.
Holiday travel is expected to remain sluggish next year as long as travellers need to worry about quarantine requirements and repeated testing before and after flights, traders said.
“Before the Omicron variant surfaced, there was speculation that China would reopen its borders after the Beijing Winter Olympics, which could boost Asia’s jet fuel demand. But this is now hanging in the air with the threat from the new variant,” Serena Huang, Asia lead analyst at Vortexa, said.
Be smart with your money. Get the latest investing insights delivered right to your inbox three times a week, with the Globe Investor newsletter. Sign up today.