SINGAPORE, Jan 27 (Reuters): Asian refiners are pinning their 2024 jet fuel demand hopes on continued air travel recovery from China and southeast Asia, with supply movements to be driven by output from a spate of new Middle East capacity, traders and analysts said.
While Chinese domestic flight numbers surpassed 2019 levels in the third quarter of 2023, international traffic has been slower to rebound but is gaining momentum.
A shaky post-pandemic recovery in southeast Asia, which has yet to see traffic back at 2019 levels partly due to weak flows from China, will also dictate demand levels.
Overall Asian jet fuel demand in the first half is likely to rise 20% annually to 2.36 million barrels per day (bpd), data from consultancy FGE showed.
In 2024, average jet fuel/kerosene margins - or "cracks" - in Asia are forecast to narrow, with Middle East tensions potentially pushing up crude prices. Rystad's Shenglan Niu expects cracks averaging $16.70 a barrel, while Wood Mackenzie analyst Priti Choudhary forecasts $20.60.
LSEG's calculated 2023 margins were $24.60 a barrel.
Here are factors to watch in 2024:
CHINA RECOVERY
China's slow international air traffic recovery after easing pandemic restrictions gained momentum in the third quarter, helped by additional flights on routes to longer-haul markets, including Australia and the United States.
Rystad Energy senior oil analyst Shenglan Niu expects China to account for half of Asian year-on-year jet fuel demand growth in the first half of 2024 - or roughly 263,000 barrels per day.
China's international flight numbers are likely to reach at least 71% of 2019 levels for the first quarter, according to Jefferies analysts. That is likely to rise to up to 85% by year-end, from an average of 50% last year, FGE analysts say.
SHAKY SOUTHEAST
In southeast Asia, however, capacity for both domestic and international flights still lags 2019 levels, flight data from OAG showed, although international seat capacity for January is up 34% year-on-year.
Thailand, Vietnam, and Singapore have seen an especially slow return of international tourists, while increased use of videoconferencing eroded business travel demand, FGE analysts wrote, with overall Asia jet fuel demand likely to hit 2019 levels only around the fourth quarter.
"In Thailand, international tourist arrivals have been stagnant at 65-70% of 2019 levels since the start of 2023 amid a slow return of Chinese visitors," FGE said.
Growth in the region will likely be led by Singapore, Thailand and Indonesia.
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