The freight market for product tankers remains in flux, as many variables are shifting. In its latest weekly report, shipbroker Gibson said that “with the summer holiday season nearly upon us, attention turns to the state of the jet fuel market as it contends with the opposing forces of rising demand and on-going Covid-19 travel restrictions. Naturally the sector has struggled with fewer flights and thus reduced jet fuel demand after months of fluctuating case numbers and travel restrictions both in Europe and further afield. IATA estimates that global air traffic in March 2021 was down 87.8% compared to 2019 showing the extent of the pandemic on aviation. Many are now hoping that the promising vaccination programmes and the introduction of vaccine passports along with lower case numbers mean that finally the sector can begin its recovery”.

Gibson added that “the IEA forecasts global jet fuel demand will not return to 2019 pre-pandemic levels until 2024 as a result of lingering travel restrictions, altered travel habits and the slower rate of vaccinations in developing countries. The increasing number of variants is also likely to play a role in keeping demand constrained past 2021. Furthermore, the recovery in jet fuel demand is unlikely to be even across regions as a result of significant varations in vaccination rates and travel restrictions. The rebound is likely to happen first in developed regions such as Europe and North America who at the time of writing have achieved a 20% and 28% fully vaccinated rate of the population compared to Asia and Africa on 2.5% and 0.77% respectively”.

According to the shipbroker, ‘differences within regions are also important. For example, in Europe some countries continue to lag behind others, which will further push back localised jet fuel demand until sufficient vaccination rates are reached. Meanwhile in Asia, the situation is not as positive as in the West due to continued restrictions and cases. Generally travel requirements and restrictions are toughest in Asia which is likely to slow the rate of recovery until travel is normalised. Within Asia, the Chinese domestic aviation market is recovering strongly, helping to absorb extra jet fuel volumes from Asian refiners. The Chinese refinery maintenance season is due to end soon,which along with additional Chinese refining capacity coming online would put pressure on refining margins in the region. With markets in the East currenty weak and markets in the West being stronger, this could encourage arbitrage flows from East of Suez into the Altantic Basin, assuming European and North American demand continues its recovery. Overall, this is beneficial for the longer haul LR tankers, but newbuild VLCCs and Suezmaxes able to load products on their maiden voyage could take demand from product carriers”.

Gibson concluded that “it is possible that once travel restrictions are lifted there could be a degree of pent up demand for air travel as people wish to take long-overdue holiday and business travel. This would temporarily boost jet fuel demand, perhaps not so in 2021 but in 2022. Looking ahead, airlines and travellers will be hoping for increasing normality in air travel whilst jet fuel suppliers will inevitably hope this translates into rising demand volumes. However, the market is not expecting a full recovery anytime soon, at least not until the world gets to grips with the Covid variants and vaccination rates improve in the developing world. Until then it is likely jet fuel demand will see a two speed recovery across regions and the sector remaining challenging”.
Nikos Roussanoglou, Hellenic Shipping News Worldwide