Refining profits on jet fuel hit a recent high in December as global jet fuel markets benefit from the gradual recovery of aviation market segments and the promise of a widespread recovery in light of COVID vaccine news.
Analysts suggest that December marked a turning point due to success in global air cargo markets, however increasing fuel prices were also driven by notable domestic travel recovery in some Asian markets.
According to Reuters, jet refining margins in Asia – the world’s top fuel market – have soared 580 per cent, and export prices are up 45 per cent since mid-September to their highest since March.
This market was significantly impacted by improving conditions in regional and domestic travel markets as well as easing COVID restrictions, with many countries in the Asia-Pacific having gained control over the spread of the virus.
Qiaoling Chen, research associate at consultancy Wood Mackenzie in Singapore, forecast Asian jet fuel demand at 1.4 million barrels per day (bpd) in the first quarter of next year.
“We expect vaccines will become available by (the) end of Q1 2021 and some travel restrictions will remain in place,” Chen added.
The consultancy expects appetite for jet fuel in the region to hit 1.3 million bpd in the fourth quarter of 2020, up by 460,000 bpd from Q2, but still 41 per cent below the same period in 2019.
In the US, jet fuel margins have roughly doubled since mid-September to more than $13 a barrel, but are still about $10 per barrel below 2019 levels, according to Refinitiv data.
Artyom Tchen, senior analyst at Rystad Energy in Norway, said US jet fuel demand is currently around 1.34 million bpd, 30 per cent below pre-coronavirus levels in January.
“We will see the demand recovery going forward, but it will take some time and is especially dependent on how quickly international traffic volumes from the US recover,” he said.
While passenger air travel globally has recovered from its plunge to near total stoppage in May, the number of scheduled flights remained around 45 per cent below 2019 levels in November.
Cargo traffic, however, has recovered far more briskly, and in October was only 6 per cent below pre-COVID levels thanks to booming e-commerce.
Global air cargo demand is expected to receive a further boost as airlines prepare to play a key role in mass vaccine roll-outs.
Against this backdrop, European jet fuel margins rose above $4 a barrel for the first time since March this month, after falling deep into negative territory in April-May at the height of regional lockdowns.
JP Morgan pegs European jet fuel demand at 700,000 bpd in the third and fourth quarters of 2020. That is up from around 400,000 bpd in the second quarter but around half the 1.3 million bpd seen in the first quarter.
“It [jet fuel] may pick up in Q2 . At least I hope it does. We are all tired of not travelling!” said Sukrit Vijayakar, director of energy consultancy Trifecta.