Global variations in the recovery of oil product markets could see jet fuel arbitrage opportunities for product tanker owners in Asia, UK shipbroker Gibson believes.

This is good news for long-haul LR tankers, but could also see VLCC and suezmax newbuildings picking up cargoes on their maiden voyages from shipyards in the region, the company has forecast.

The International Energy Agency (IEA) does not believe jet fuel demand will return to 2019's pre-pandemic levels until 2024 as a result of lingering travel restrictions, altered travel habits and the slower rate of vaccinations in developing countries.

And the increasing number of Covid-19 variants is also likely to play a role in keeping demand constrained past 2021, according to Gibson.

Asia recovering faster

But in Asia, the Chinese domestic aviation market is recovering strongly, helping to absorb extra jet fuel volumes from Asian refiners.

The Chinese refinery maintenance season is due to end soon, which, along with additional Chinese refining capacity coming online, would put pressure on refining margins in the region, Gibson said.

"With markets in the East currently weak and markets in the West being stronger, this could encourage arbitrage flows from east of Suez into the Atlantic basin, assuming European and North American demand continues its recovery," the broker added.

Overall, this is beneficial for the longer-haul LRs tankers, but newly built VLCCs and suezmaxes able to load products on their maiden voyage could take demand from product carriers, Gibson said.

A crew gets ready to board Thun Tankers' new product carrier Thun Liffey in China in 2020. Photo: Thun Tankers

"It is possible that once travel restrictions are lifted there could be a degree of pent-up demand for air travel as people wish to take long-overdue holiday and business travel," Gibson added.

This would temporarily boost jet fuel demand, perhaps not in 2021 but in 2022, the shipbroker believes.

But travel requirements and restrictions are generally toughest in Asia, which is likely to slow the rate of recovery until travel is normalised.

"Looking ahead, airlines and travellers will be hoping for increasing normality in air travel, whilst jet fuel suppliers will inevitably hope this translates into rising demand volumes," Gibson said.

Clarksons Platou Securities said MR tanker rates jumped 12% towards the end of last week, reaching $10,400 per day for eco-vessels.

The US Gulf market sprang back to life and the EIA reported a strong growth in product inventories of 13m barrels in the seven days to 11 June.

Refiners pump up volumes

US refineries are cranking up runs and operated at 91% utilisation over the period, compared to 86% over the past month.

This is the equivalent of about 900,000 barrels per day of extra throughput, Clarksons Platou said.

Refiners are anticipating a strong summer driving season but US demand has yet to move higher, thus the extra production has ended up in inventories for now, allowing for more exports, the investment banking arm of the UK shipbroker added.

"We believe the US data on refining runs is worth highlighting as an early indication of what to expect worldwide in the coming months," Clarksons Platou said.