Aviation Fuel Fallen to 'Gyeryuk'... Even with 40% Production Cut, Cheaper than Crude Oil

Impact of COVID-19... Sharp Drop in Air Travel Demand
August Production Down 42.5% YoY
High Margins a Thing of the Past... Cheaper Than Brent Oil

[Asia Economy Reporter Hwang Yoon-joo] Aviation fuel, once considered a lucrative profit source in the refining industry, has become a 'gye-reuk' (chicken ribs). Due to the sharp decline in air travel demand caused by the COVID-19 pandemic, the refining industry has been flexibly responding by cutting aviation fuel production by nearly half, but demand remains at a cliff edge.

According to the Korea National Oil Corporation on the 5th, domestic aviation fuel production (domestic consumption + export) by the refining industry in August this year was recorded at 9.16 million barrels. This is a 42.5% decrease compared to the same month last year (15.936 million barrels).

Since countries worldwide began rejecting overseas arrivals after the COVID-19 outbreak, the refining industry has steadily reduced aviation fuel production since March. The cumulative aviation fuel production from January to August this year was 84.076 million barrels, down 27.1% from the same period last year (115.397 million barrels).

Profitability has also deteriorated due to the demand cliff. Aviation fuel generally had higher margins than other petroleum products, but after the COVID-19 outbreak, demand sharply dropped, and it is now sold at prices similar to crude oil. As of the 2nd, the international aviation fuel (kerosene) price was $39.24 per barrel. It is cheaper than Brent crude ($39.27) and similar to Dubai crude ($38.62) and WTI ($37.05). This means selling aviation fuel is not profitable.

In fact, the domestic refining industry's aviation fuel selling prices have also fallen. In the first half of this year, the average selling price of aviation fuel by SK Innovation (SK Incheon Petrochem) and S-Oil was 57,489 KRW and 53,807 KRW per barrel, respectively. These amounts represent a 38% and 41% decrease compared to the same period last year.

However, the refining industry cannot completely stop aviation fuel production. Due to the nature of crude oil refining, a certain scale of aviation fuel production is unavoidable. Therefore, the refining industry is taking desperate measures such as minimizing aviation fuel production during crude oil refining or mixing produced aviation fuel with heavy oil for sale.

An industry official said, "Before COVID-19, aviation fuel consumption never fell below an average of 2 million barrels per month, with high sales volume and good margins. Now, prices have dropped, and diesel margins have also decreased due to mixing with heavy oil, making aviation fuel a 'gye-reuk' (chicken ribs)."

This content was produced with the assistance of AI translation services.