January 28, 2020 / 8:14 AM / a month ago

Asia jet fuel demand slumps as airlines cancel flights after virus outbreak

* Margins at their lowest level since June 2017 -Refinitiv data

* Jet fuel demand could fall by 170,000 bpd in 2020 -Goldman Sachs

* Tour operators in Europe cancel trips to China, offer refunds

By Koustav Samanta and Jessica Jaganathan

SINGAPORE, Jan 28 (Reuters) - 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 2-1/2 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, so far killing more than 100 people in China and spreading to more than 10 countries, including France, Japan and the United States.

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 travelling 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%. And now, the travel industry is more reliant on Chinese travellers, and China’s share of the global economy has quadrupled.

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 cancelling 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% 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% 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% since the start of this year, Refinitiv Eikon data showed.

A milder than normal winter in Asia has also weighed on margins for kerosene, which belongs to the same grade of oil products as jet fuel.

Reporting by Koustav Samanta and Jessica Jaganathan; Editing by Florence Tan and Tom Hogue

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