Standard Chartered expects 4% growth in global passenger air travel, sees resilience for fuel oil and gas oil in the near term, cites low European fuel oil inventories.

Standard Chartered says in its latest Oil Products Insight report that refinery margins are regaining strength, with fuel oil supported by healthy demand from China and Japan. In a research note, the bank says that it expects the latter to continue. “We remain confident that fuel oil and gas oil in Asia will be supported in the near to medium term.”

“We are confident that the refined oil products complex will remain supported in the near term; fuel oil and gas oil in Asia should lead the way, followed by jet, then naphtha. Europe’s refining industry is in a state of flux, but fuel oil and gas oil should remain resilient in the near term,” the research note says.

Standard Chartered is expecting global passenger air travel to grow by 4% this year, and while demand for jet in Asia is expected to remain soft in the medium term “as travel eases after the Lunar New Year holiday period”, Standard Chartered predicts that “jet demand driven by Asia-Pacific air travel will exceed global growth levels.”

The research note also draws attention to the fact that Chinese fuel oil imports rose by 16% in 2011, with demand from Japan continuing to support spreads. "We see this continuing in the medium term as the country moves away from nuclear energy," says Standard Chartered.

It also says that “European fuel oil supply and demand fundamentals are weaker in Europe, but are being supported by low inventories and strength in Asia,” citing a 23% YoY decline in average stock levels for Amsterdam-Rotterdam-Antwerp (week ending January 27) to 13.2mbbl.