Singapore jet fuel Q2-Q3 spread narrows 72% as China lockdowns stoke demand woes

Singapore second-third quarter jet fuel/kerosene swap spread narrowed sharply by 72.42% on the week to $5.43/b at the Asian close March 16, as coronavirus-led lockdowns raised worries about a potential slowdown in China, the world's largest importer of crude.

The Q2-Q3 jet fuel/kerosene derivative spread -- an indication of near-term sentiment -- was assessed at $5.43/b at the 0830 GMT Asian close on March 16, $14.26/b lower from a record high of $19.69/b on March 9, according to S&P Global Commodity Insights historical data that dates back to March 28, 2001.

Industry sources attributed the slump in the Q2-Q3 spread to uncertainty in demand after China sent nearly 30 million people into lockdown across the country, to contain its worst COVID-19 crisis since early 2020, spurred by the highly transmissible omicron variant of the coronavirus.

The government imposed movement restrictions in Shenzhen city and Jilin province, while China's largest city Shanghai is under a slew of pandemic-related limitations, as the country pursues its 'zero-COVID policy', local media reported.

"We are downward adjusting our demand estimation for China while observing the pandemic situation and the government's corresponding measures," said Sun Jianan, an analyst with S&P Global Commodity Insights' Platts Analytics.

Analysts from Beijing, Shenzhen and Guangzhou have lowered their demand outlooks, with some of them expecting about a 4% cut in oil product demand from original projections.

Platts Analytics previously estimated China's oil demand at 15.8 million b/d in March, rising about 9% from February as economic activities resumed following Lunar New Year holiday and Winter Olympics, according to its monthly report dated March 9.

"The impact on China's energy consumption is highly contingent on the duration of such stringent lockdowns, noting that the affected areas' share of exports, car production, and even headline GDP are in the double digits," Han Tan, Exinity's chief market analyst told S&P Global.

In contrast, industry sources noted that jet fuel demand continues to gradually gain momentum in other parts of the region, particularly in India, Singapore and Vietnam, where local governments have relaxed border and travel restrictions.

Weekly scheduled airline capacity rose 0.1% on the week to 82.09 million seats for the week starting March 15, as small increases in Western Europe, North America, and South and Southeast Asia capacity offset a 3.1% fall in northeast Asia and 9.1% slump in Central/Eastern Europe, according to aviation data company OAG March 15.

OAG data showed that global seat capacity is currently at 77.1% of pre-pandemic levels from the week that began March 11, 2019.

At the Asian close March 16, the cash differential for Platts FOB Singapore jet fuel/kerosene was assessed 60 cents/b lower on the day at plus $3.17/b to the Mean of Platts Singapore jet fuel/kerosene assessment, S&P Global data showed.