Tokyo—There is growing optimism in Japan that the Tokyo Olympics will aid a jet fuel-led oil products demand recovery in 2021, seen as the light at the end of a tunnel after a long period of feeble sales, although the COVID-19 pandemic will continue to dictate decisions on run rates.
Although it is too early for the government to decide on issues such as spectator turnout, the distribution of vaccines and flights from various countries, Japanese refining sources surveyed by S&P Global Platts said they expect a recovery in refined products demand next year from 2020 levels, with a potential surge in jet fuel demand during the second quarter."We should probably see special demand [for jet fuel]," a source with a Japanese refiner said, when asked to comment about the outlook for the aviation fuel demand in relation to the Olympics.
"We are still unsure about the potential incremental demand as yet because it will depend on how [the Olympics] will be held with levels of spectators," the source said.
A source with another Japanese refiner said that jet fuel demand will likely be a decisive factor for increasing overall refinery run rates next year with gradual demand recovery for other products.
"Japan's oil demand is expected to grow by 3% in 2021 after contracting by nearly 11% in 2020 due to the fallout from COVID-19," JY Lim, oil market adviser at S&P Global Platts Analytics, said.
"The rebound next year will be driven largely by gasoline and improving jet fuel demand, supported by the rescheduled Olympics Games, with the influx of foreign visitors," Lim said.
Following a November meeting with Japanese Prime Minister Yoshihide Suga in Tokyo, International Olympic Committee President Thomas Bach described the "Games will be a light at the end of the dark tunnel" with a set of the infection control measures.
Special flightsThe Ministry of Land, Infrastructure, Transport and Tourism is currently working with the Japanese health ministry and other relevant parties to decide by the end of March on issuing slots for special charter flights for the Olympics events over July-September, a ministry source told Platts.
Following the decision, if undertaken, MLIT plans to invite domestic and international airlines to apply for the slots for special charter flights for the Olympics events, the source said, adding that it remains unclear about the potential quantity of the special charter flights and the size of demand.
The Tokyo Olympics is scheduled to take place with COVID-19 infection control measures over July 23-Aug. 8, 2021, with the Paralympic Games happening over Aug. 24-Sept. 5 after having been postponed from earlier this year due to the coronavirus pandemic.
Demand recoverySeveral Asian jet fuel trading sources said prospects of the Tokyo Olympics would support sentiment in the market next year, albeit possibly short-lived, depending on the successful deployment of COVID-19 vaccines.
"Traditionally, jet fuel demand would be higher prior to the Olympics, and this is due to athletes flying in from all over the globe to contest in the games," a South Korean refining source with close knowledge of Asia Pacific jet fuel trades said.
"That said, the coronavirus vaccine seems to be giving some support to the aviation sector, and if it is proven to work, I think we should see more demand for jet fuel prior to the Olympics," the source added.
There are mixed views over whether the entire Olympics schedule -- from the opening ceremony to the close -- should be maintained and ongoing debates about whether to hold all sporting and athletic events as originally planned, the events could mark a turnaround in sentiment for the aviation sector and regional jet fuel market.
"Olympics is likely to coincide with more people being vaccinated globally. Hence, if more countries start to lift their borders without imposing quarantine, that will help to boost demand," an Asian refining source said.
Japan refinery run ratesThe coronavirus pandemic has plummeted Japan's oil demand and led to dramatic drops in its crude import and refinery runs to multiple decades low in 2020, but crude throughput is likely to improve next year on the back of an expected gradual demand recovery.
"Given the Japanese oil demand at an extreme level during the coronavirus pandemic [in 2020], it should make some recovery [in the new year] although the demand could still be down from a level in 2019," a source with a Japanese refiner said.
Japanese refiners are likely to raise crude runs with the expected improvement in demand, boosting throughput by some 250,000 b/d in 2021, after plunging by nearly 560,000 b/d in 2020, Lim said.
