Bearish outlook for global jet fuel demand

• Date: 01 October 2020
• Published date: 01 October 2020
• DOI: http://doi.org/10.1111/oet.12821

LOOKING AHEAD

Bearish outlook for global jet fuel demand

Of all the refined products, it is jet fuel demand that has

been hardest hit by the Covid-19 pandemic, and the

effects increasingly look like lasting for some time. After

massive disruption to air services due to travel restric-

tions during the spring and summer, much of the world

still closed to international air travel as we head into

autumn, and demand outlooks keep being revised down-

ward. A full recovery in jet demand is now not expected

until 2024, according to most industry projections,

although levels should start to rise next year provided

vaccines are developed and widely deployed.

Jet demand remains well below last year's levels—in

July, global passenger traffic was down 79.8% vs 2019,

while international traffic was at just 8% of normal levels,

according to industry sources. Anticipated averages for

the year are also sharply lower, with the IEA projecting a

fall of 39% to just 4.8 mn bpd for 2020, rising to 5.8 mn

bpd in 2021—still well down on 2019's 7.9 mn bpd. Cur-

rently even those IEA forecasts look optimistic.

The impact does vary across the globe (see Figure 1).

In the United States, for example, the jet market in

August was about half the size of a year ago, but it was

still reboundin g faster than most o ther parts of the

world because in ternational flig hts account for a sm aller

proportion than i n other countrie s, and it is interna-

tional flights that have been worst effected: Estimated

US jet fuel consump tion by domestic co mmercial pas-

senger flights fell by 47% between January 2020 and July

2020 compared with a decline of 70% for international

flights during the s ame period, accord ing to the US

EIA.

1

Consequently, the overall share of commercial

passenger jet fuel consumed by domestic flights

increased from an average of 56% in January 2020 to

69% in July 2020. Domestic flights in the United States

have more recently risen to nearly 70% of prepandemic

norms, according to a September repo rt from S&P

Global Platts, although the improvement weakened in

the late summer. To tal US jet demand av eraged 1.012

mn bpd for the 4 weeks ending August 28, about 4 7%

lower than the year before.

Chinese consumption has also rebounded relatively

quickly, with levels in China and Hong Kong managing

to rise to 60% of the amount used in the previous year in

August, while aviation gasoline and kerosene imports to

Hong Kong were down by over 40% year on year in July.

Among the highest growth countries prior to the pan-

demic, China has also benefitted from a market were a

high proportion of flights are domestic, which have risen

to 80% of normal levels. In addition, the pandemic impact

was reduced by China's early and relatively light expo-

sure to the disease, and its strict government controls. Jet

demand in India has been hit much harder than in

China, with consumption down by 65% from last year at

just 65 000 bpd due to ongoing flight restrictions domesti-

cally and an international ban. Asian markets, like else-

where, remain weak in September, illustrated by prompt

discounts on physical cargoes.

Europe is faring only marginally better than India,

with jet demand for passenger flights on August 16th esti-

mated at just 36% of last year's levels. Imports that con-

tinue to flow into the European region unabated have

created a massive jet fuel overhang following a holiday

travel season fraught with disruption and cancelled

flights, and traders are losing money from holding float-

ing storage as buyers remain difficult to find. Jet floating

storage has fallen slightly from an all-time high of 2.4 mn

tons in August, but market sources say the overhang has

simply moved to cheaper storage facilities onshore which

are now full. Demand from the rest of the world, where

most flights are international, is even worse, with Africa

and the Middle East around 30%; the rest of Asia 28%,

and in the rest of the Americas just 24% of year-ago

levels. Cargo-only flights are likely to be less affected, but

this is a relatively small proportion of the total.

FIGURE 1 Ratio of 2020 jet fuel consumption by commercial

passenger jets to 2019 consumption, 7-day moving average (January

1, 2020 to August 16, 2020). Source: EIA

1

DOI: 10.1111/oet.12821

10 © 2020 John Wiley & Sons Ltd Oil and Energy Trends. 2020;45:10–11.wileyonlinelibrary.com/journal/oet