By Koustav Samanta

SINGAPORE (Reuters – Asian jet fuel refiner profits are already at record highs. As relaxed border restrictions boost summer travel demand, global airline capacity reaches 100m seats for the first times since the early 2020s.

According to industry data, however, the numbers of seats on scheduled airlines has steadily increased over the past three month despite increasing fares and fuel surcharges.

As people want to make up the time lost in two years, “the release of untapped travel demand continues.” Sandy Kwa from the Boston Consulting Group, said that this demand support will continue in the coming months, barring new viruses.

Graphic: Global passenger airlines seat schedules – https://fingfx.thomsonreuters.com/gfx/ce/jnpwezndbpw/GlobalAirlineSeatCapacityMay2022.png

According to Refinitiv data, Asia’s benchmark jetfuel refining margins in Singapore, otherwise known as cracks this week, hit an all-time high of $50.75 per barrel over Dubai crude.

According to a Singapore trade source, “With the rise in travel demand, the crack (jet fuel), crack appears likely to increase even more.”

Since the Russia-Ukraine conflict started in February, cracks have more that tripled. They have risen nearly 100% since March-end, as global airline capacity increased to about 12,000,000 seats, or 95.2 million, according OAG, an aviation data company.

China was the only country to add more than 3,000,000 seats this week.

Graphic: Jet fuel prices & refining margins take off as global travel demand picks up – https://fingfx.thomsonreuters.com/gfx/ce/akpezrkwyvr/JetPricesvsMarginsJune2022.png

Peter Lee, Fitch Solutions senior oil and gas analyst said that “jet fuel demand will remain highly constructive over these coming months… governments are highly skilled at managing outbreaks. They have moved from imposing limitations to living with it.”

OAG data revealed that global flight schedules would reach 100.6 millions seats next week, and rise to 108.5 million seats mid-August. However, recovery is still uneven.

Jane Xie from Kpler, senior analyst for oil and data analytics said that “international air travel to and from China is likely to remain subdued while the country sticks to its zero Covid policy and will likely seek to minimize importing COVID case,”.

We expect that the demand for jet/kero in Asia will increase rapidly (by approximately 200,000-220,000 barrels each day, month-on-month, excepting China) given that these are peak travel season.

According to market watchers, demand growth will slow down in the final quarter of 2013, before picking back up over November/December because stockpiling is taking place ahead of peak winter months.

Jet market sentiment may be influenced by the demand side. Refiners might prioritise diesel fuel over jet fuel.

According to Serena Huang (senior market analyst, Vortexa), “Refiners are optimizing diesel for jet production according to economics” and this is supporting jet fuel cracks.

An open arbitrage towards the west further pulls more barrels from the region, tightening regional supply. Diesel tightness is expected to win over jet. That should keep refiners motivated to place diesel ahead of jet production in near future.