Asia jet fuel demand slumps after flights canceled over outbreak

Several Asian airlines have suspended flights to Wuhan. (Reuters)
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Updated 29 January 2020

Asia jet fuel demand slumps after flights canceled over outbreak

  • Jet fuel demand could fall by 170,000 bpd in 2020

SINGAPORE: Asian jet fuel demand is taking a beating from an outbreak of a flu-like virus in China that has led airlines to cancel scores of flights during the peak lunar new year travel season.

Jet fuel prices have dropped and refiners’ profits for the product have slumped to the lowest in more than two and a half years, while industry analysts are cutting their 2020 forecasts for jet fuel and overall oil demand.

Airlines and passengers are on guard against the respiratory coronavirus that originated in the central Chinese city of Wuhan, killing more than 130 people in China so far and spreading to over a dozen countries.

“Chinese jet demand usually sees a seasonal upside of around 150,000 barrels per day (bpd) ahead of the lunar new year in January versus December, and we are likely to be looking at a lower-than-average seasonal uptick for early 2020 given the curtailments on travel,” said Kostantsa Rangelova, lead Asia analyst at Vienna-based consultancy JBC Energy.

Many passengers have called off travel plans for the lunar new year holiday, prompting airlines to offer refunds.

“Market participants, already wary of slow demand growth from last year, are weighing the effects on global oil demand of the lockdown in several cities in China, and likely reduced traveling in the broader Asia-Pacific region,” Barclays analyst Amarpreet Singh said in a note.

During the 2002-2003 outbreak of severe acute respiratory syndrome (SARS) — also caused by a coronavirus that originated in China and which killed nearly 800 people globally — air passenger demand in Asia plunged 45 percent. And now, the travel industry is more reliant on Chinese travelers, and China’s share of the global economy has quadrupled.

“This year, the impact on jet fuel could be more severe, as China’s share of global jet demand has risen from 3.8 percent in 2003 to 12 percent in 2017,” Citi analysts led by Ed Morse said in a note.

If air passenger traffic in China were to decline by half in the first quarter of this year, it would likely lead to a 300,000 barrels-per-day (bpd) decline in jet kerosene demand from China from a year ago, Barclays analyst Singh said.

Several airlines across Asia have suspended flights to Wuhan, and some tour operators are canceling trips to China.

“Flight departures from the top five biggest Chinese airports fell by nearly 800 flights this past weekend relative to (the previous) weekend, while traffic in the five airports closest to Wuhan have fallen by nearly 50 percent over recent days,” analysts at RBC Capital Markets said in a note.

Jet fuel demand over the past five years has been a bright spot for global oil demand growth, accounting for some 15 percent of Chinese demand growth, the analysts said.

Refiners’ profits for producing a barrel of jet fuel from Dubai crude fell to $9.25 a barrel on Monday, the lowest level since June 2017 and down nearly 40 percent since the start of this year, Refinitiv Eikon data showed.


Embattled Turkey looks to US dollar swaps as virus costs bite

Updated 03 April 2020

Embattled Turkey looks to US dollar swaps as virus costs bite

  • Turkey looking for access to the US Federal Reserve’s dollar swap lines as the country’s economy struggles with the costs of the coronavirus pandemic
  • The outlook for the Turkish lira in coming months is grim, with the global stay at home campaign likely to undermine tourism revenues as well as export-based businesses

ANKARA: Turkish officials are believed to be negotiating with their American counterparts for secure access to the US Federal Reserve’s dollar swap lines as the country’s economy struggles with the costs of the coronavirus pandemic.

In March, as the contagion spread across the world, the US central bank established liquidity swap lines with the Bank of England, Bank of Japan and European Central Bank as well as their counterparts in Canada and Switzerland, before piping dollars into other central banks in Singapore, Australia, Mexico and Brazil.

However, no swap lines have been extended to Turkey whose budget deficit reached almost 5 percent of gross domestic product (GDP) last year.

“With the lira weaker than it has been since the 2018 spat with the US over the imprisonment of pastor Andrew Branson and with net foreign currency reserves almost depleted, the ability of Turkish central bank to sustain the currency is limited,” said Wolfango Piccoli, co-president of Teneo Intelligence in London.

Experts say that the outlook for the Turkish lira in coming months is grim, with the global “stay at home” campaign likely to undermine tourism revenues as well as export-based businesses in the country.

Tourism accounts for about 13 percent of Turkey’s $753 billion economy.

Following the introduction of quarantine restrictions, Turkey’s export volume dropped 3.9 percent on a yearly basis to $42.8 billion in the first three months of 2020, while last month the country’s exports narrowed by 17.8 percent compared with a year earlier, reaching $13.4 billion.

Piccoli said that Turkey’s hopes for a swap line with the Fed shows that Ankara remains reluctant to ask the International Monetary Fund (IMF) for assistance, mainly for political reasons.

However, other experts say that Turkey’s foreign reserves are depleted and Ankara may be forced to approach the IMF to survive the crisis.

So far, about 85 countries have applied to the IMF for emergency support. But borrowing money from the IMF was among the main criticisms directed by the ruling Justice and Development Party against its political rivals.

Meanwhile, Fitch Ratings on Friday joined other international ratings agencies by lowering its 2020 growth outlook for the Turkish economy from 3.9 percent to 0.8 percent, while raising its 2021 growth estimates from 4 percent to 4.5 percent.

The country’s economic outlook was also revised downwards by Moody’s, which said Turkey’s economy will be “hit hardest” among G20 economies, with a contraction in second- and third-quarter GDP of about 7 percent.

“As before, the Turkish government will enable the state banks to defend the lira, which will be increasingly difficult. The outlook for the lira, despite the current depreciated state, is more negative than positive,” Emre Deliveli, a Turkish economist, told Arab News.

Deliveli said that Turkey may ask for IMF help in July or August after its summer tourism revenues fall.

“But this option is valid only when it becomes obvious to the officials in charge of the economy and Treasury, as well as to Turkish President Recep Tayyip Erdogan, that there is no other choice,” he said.

Turkey’s central bank on Tuesday announced new stimulus measures for the financial sector and economy, and also said that it will increase government debt buying while offering new avenues for cheap funding.

“Resources are running out, I don’t think the current strategy is sustainable,” said Timothy Ash, a London-based senior emerging markets strategist at Bluebay Asset Management.

“So the options are to let the Turkish lira find its own level, or try to replenish foreign exchange reserves either with Fed swap line or an IMF program,” he told Arab News.

According to official figures, thousands of struggling Turkish firms, especially in the food, tourism and manufacturing sectors, have applied to state authorities for compensation payments for about 420,000 employees.

More than 400,000 companies in Turkey have been closed because of lockdown measures against the pandemic. In a country that already has 4.5 million unemployed, a further two million people are expected to become jobless in the near future.