Oil processors in the world’s largest crude importer are lifting output of aviation fuel to take advantage of improved margins. — Bloomberg
SHANGHAI: Jet fuel demand in China is on the mend as flights return to the skies, offering some support to domestic refiners grappling with muted diesel and petrol consumption that’s weighed on the industry.
Oil processors in the world’s largest crude importer are lifting output of aviation fuel to take advantage of improved margins.
Total air traffic grew by 14% in June, compared with same period in 2019 before the pandemic, with domestic flights up by nearly 18%, according to government data.
China’s refiners – state-owned as well as private – have struggled this year as the economy has lost steam, electrification of the nation’s passenger car fleet dented petrol demand, and more trucks turned to gas instead of diesel.
That means the uptick in jet fuel is a plus, although the increase is relatively muted as the size of the market is smaller than for other mainstay products.
“Double-digit growth in jet-fuel consumption this year may be able to narrow the plunge in petrol and diesel,” said Amy Sun, a Guangzhou-based consultant at GL Consulting, a think-tank under data provider Mysteel. “But given its small market share, it can hardly reverse the bearishness in overall margins as fuel displacement accelerates amid a softer economy.”
Across the global oil market, the aviation sector remains one of the more resilient in terms of consumption as alternative fuels have been slow to displace the use of petroleum to power aeroplanes.
In China as pandemic curbs were loosened, domestic travel returned at a faster clip than overseas services, but more international capacity is set to be added.
“We foresee a further expansion in foreign passenger flights, which will likely reach 90% of 2019 levels over end-2024,” said Jianan Sun, a London-based analyst at Energy Aspects Ltd.
Chinese jet-fuel demand may average 960,000 barrels a day in 2024, just 2% lower than in 2019, Sun said.
Across China, oil imports dropped to the slowest pace in almost two years last month, underscoring concerns about weaker overall demand. Reflecting the challenge, run rates at teapots, as the privately owned plants are known, were less than 50% as of early-August, close to a four-year low.
In that environment, refiners are doing what they can to maximise jet fuel.
Plants owned by China Petrochemical Corp and PetroChina Co have been maximising jet fuel yields this year, as displacement from gas-fired vehicles continues to weigh on diesel.
Sinopec Yangzi and Shanghai increased output by 23% and 12%, respectively, year-on-year, according to company newsletters. Meanwhile, PetroChina’s Huabei refinery also boosted supplies. — Bloomberg
