<article><p class="lead">Pressure on northwest European jet fuel margins is likely to persist into the new year, with the lifting of travel restrictions and a full reopening of borders heavily dependent on the pace at which Covid-19 vaccines are distributed and the public's appetite to return to air travel. </p><p>That said, a strengthening of sorts has materialised, at least in the jet fuel forward curve, with first-quarter and second-quarter swaps trading at average $14.72/t and $15.97/t premiums to the futures contract between 1-11 December, compared with discounts recorded in September. Northwest European jet fuel margins to North Sea Dated crude rose to an average $3.65/bl premium between 1-11 December from discounts of roughly $1.02/bl in September, but remain well-below the $13.70/bl premium in December 2019. </p><p>The start of Covid-19 vaccination programmes has boosted market sentiment, but has yet to translate into a revival in forward bookings in the EU, which were down by 80pc on the year between 15 December and 10 January, according to the latest data from the International Air Transport Association (Iata). </p><p>Iata expects the distribution of vaccines in the second half of 2021 to mark "a turning point" for air travel demand. But the recovery will be gradual, it said. The association expects global passenger demand to rise by 56.5pc this year but to remain 38pc below 2019 levels. It forecasts a 26.9pc increase in global jet fuel consumption in 2021 but at this level demand will still be around a third lower than in 2019.</p><p>European jet fuel production is likely to be subdued in the first quarter this year as refiners constrain throughput in the face of weak margins. A significant amount of regional refining capacity is also being shut permanently or mothballed. Reduced refinery runs continue to provide support to jet fuel margins in Europe, with regional utilisation rates reported at 69pc in October and 71.1pc in November, according to latest Euroilstock data. The pressure on European refinery runs is likely to persist until at least the second quarter, owing to continued pandemic-related restrictions and seasonally low demand. </p><p>Imports from Asia-Pacific should stay relatively low well into the new year as a result of tightened supplies in the region. Jet fuel imports from South Korea — a major supplier to Europe — had already dropped by more than a third in the second half of 2020 compared with the first half, according to data from Vortexa. </p><p>But this could be at least partially offset by fresh supply from the Mideast Gulf. Kuwait's 615,000 b/d al-Zour refinery is scheduled to start up in the first quarter, and the country has also commissioned a new crude distillation unit (CDU) at its Mina Abdullah refinery as part of its long-delayed $16bn Clean Fuels Project (CFP). The CFP and al-Zour refinery are key components of Kuwait's plan to raise its total refining capacity to 1.4mn b/d from 710,000 b/d. If a sizeable portion of this new supply ends up in Europe, it could offset cuts to European run rates and place jet fuel prices under fresh pressure. </p><p class="bylines">By Florence Schmit</p></article>
