Looking ahead, jet fuel supplies from NEA are set to increase in May and June. This will be led primarily by South Korea, as crude arrivals are forecasted to recover to ~80% of pre-disruption levels in May, supporting higher refinery utilisation. Coupled with favourable jet/kero cracks, margin-oriented refineries in South Korea are expected to increase exports over the coming weeks. We also expect China to send more jet fuel barrels to other Asian markets, supported by regional demand pull. In addition, exports from Taiwan could rise amid higher production, as Formosa’s Mailiao refinery 180kbd CDU is scheduled to restart in May following planned maintenance (Argus).
Arbitrage to USWC and NWE to widen
We could also see barrels from Asia move into Europe should the East-to-West arbitrage widen. The impact of lower global jet fuel liftings in April will be felt most acutely in Wider Northwest Europe (WNWE). As shown below, WNWE jet fuel imports are expected to decrease by close to 300kbd year-on-year in early May. Inventories in the region are already tight, with ARA jet fuel stocks falling to their lowest level since March 2020 in the week to April 29 (Insights Global via Argus). At the same time, jet fuel demand in the Atlantic Basin is set to rise seasonally during the summer travel period. The combination of lower inflows and stronger demand points to a tightening market, which will likely support higher prices in NWE and incentivise arbitrage inflows from Asia.
Overall, higher supplies from Asia are expected to drive a modest recovery in global jet fuel exports in the coming months. Arbitrage economics to move jet fuel barrels from Asia to the USWC and NWE are likely to improve, leading to a rebalancing of trade flows. However, incremental exports from Asia are unlikely to fully offset lost MEG supply in the near term. Until seaborne flows normalise, jet/kero cracks are expected to remain elevated relative to other refined products, incentivising refiners to maximise jet fuel yields at the margin.