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 gasoline 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.
“Double-digit growth in jet fuel consumption this year may be able to narrow the plunge in gasoline and diesel,” said Amy Sun, a Guangzhou-based consultant at GL Consulting, a think-tank under data orovider 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 set to be added.
“We foresee a further expansion in foreign passenger flights, which will likely reach 90% of 2019 levels over end-24,” 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 maximize jet fuel. Plants owned by China Petrochemical Corp. and PetroChina Co. have been maximizing 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.
On a global level, there’s more scope for a jet fuel recovery, according to Goldman Sachs Group Inc. Although worldwide passenger numbers have about caught up with 2019 levels, they are still firmly below pre-pandemic growth trends, and consumption is still 1.2 million barrels a day — or 15% — below pre-pandemic levels, it said in a recent note.
Part of the reason may be that newer planes burn less fuel per flight. Major airlines are replacing their fleets with new, modern airplanes that are 25% more fuel efficient, according to Energy Aspects’ Sun.