Eid holidays to propel Middle East jet fuel demand, but ample supply to cap price gains

Jet fuel/kerosene consumption in the Middle East is expected to strengthen in the coming weeks as airlines boosted capacity ahead of the Eid al-Fitr holidays anticipating of a significant increase in regional travel demand, but ample supply is likely to cap an upside in prices in the wake of higher production, traders said.

Emirates, the UAE's flag carrier and the region's largest airline, has said it will add 38 additional flights in the Gulf Cooperation Council and wider Middle East to meet higher air travel demand during the Eid al-Fitr holidays. With more than 100,000 travelers expected to fly, the airline said that the extra flights will service locations including Riyadh, Dammam, Jeddah, Medina, Kuwait, and Beirut, during the peak travel season over April-May.

Abu Dhabi Airports expects more than 500,000 passengers to transit through its international airports during the festive season over April 15-23, with over 2,800 flights serving 105 destinations in 57 countries.

The anticipated increase in passenger traffic follows International Air Transport Association's latest report that showed Middle Eastern airlines seeing a 75% year-on-year increase in international passenger air traffic in February, with the region's domestic passenger air volumes hitting 95.4% of prepandemic levels during the month.

Supply weighs on prices

After starting off 2023 on a strong footing, jet fuel/kerosene prices have declined over the first quarter, with plentiful supplies weighing on aviation fuel prices amid steady demand and resulting in weakening product cracks.

Platts, part of S&P Global Commodity Insights, assessed the front month FOB Singapore jet fuel/kerosene swap crack against front month cash Dubai at $12.54/b at the Asian close April 19, weakening 77 cents/b day on day and 63.1% from $34/b at the start of the year.

Meanwhile, the FOB Arab Gulf cash differential for jet fuel/kerosene cargoes averaged at a premium of $4.29/b to Mean of Platts Arab Gulf jet fuel/kerosene assessment in the month through April 19, down $3.05/b, or 41.6%, from an average of plus $7.34/b in January, S&P Global data showed.

Market participants said a combination of excess supply -- prompted by a hike in production at the start of the year on the back of widespread expectations that aviation fuel demand would soar -- and poor East-West arbitrage economics as well as an uneven recovery path in the Asian aviation sector has led to a buildup in regional supply that has outpaced jet fuel demand.

"Demand for jet fuel has been relatively stable but it can't cope with the surge in supply," a Southeast Asia-based trader said.

Steady recovery

Market sources said regional demand for aviation fuel has been steady. In the Middle East, that was evident from the latest data from Saudi Arabia's Joint Organizations Data Initiative that showed February jet fuel consumption rising 22.2% on the month and 113.6% on the year to a 42-month high of 408,000 mt. The last time Saudi Arabia's aviation fuel consumption was higher was in August 2019 at 467,000 mt, according to JODI data.

S&P Global, in its latest Middle East oil report, said the momentum in jet fuel/kerosene demand in the Middle East is likely to sustain in the second quarter as the aviation sector continues to normalize.

"Kero/jet demand in the region will likely keep the momentum and increase by 36,000 b/d, or 8.1% year on year, to 476.000 b/d in [the second quarter]. Jet fuel demand in the Middle East region will likely increase 9.3% year on year in [the second quarter]," the report said, adding that Dubai International Airport flights surpassed prepandemic levels in March.

The Dubai International Airport is a major transit terminal for regional and international passengers, and it retained the title as the world's busiest airport by international traffic for the ninth consecutive year after clocking 66.1 million passengers in 2022, up 127% from 2021.

Some market sources said lower outright jet fuel/kerosene prices could spur buying activity. Platts assessed FOB Singapore jet fuel/kerosene at $96.08/b at the Asian close April 19, the lowest so far in April and down 9.6% from an average of $106.26/b in the first quarter.