Demand for air travel in Europe will remain under pressure in the short term amid rising Covid cases and new containment measures put in place to stem the spread of the Omicron variant. But the outlook is more upbeat than a year ago thanks to widespread vaccination campaigns.
The International Air Transport Association (Iata) says the return of "ill-advised" travel restrictions will stall the aviation sector's recovery in the early months of 2022, but it expects an improvement in global passenger numbers for the year as a whole, with traffic forecast to reach 61pc of pre-pandemic levels in 2022, compared with just 40pc in 2021.
The IEA paints a similar picture in its latest Oil Market Report. "While significantly lower than previous projections, world jet fuel demand is expected to continue to recover from last year's slump. New travel restrictions are likely to remain milder than during previous Covid waves in countries where a large share of the population is vaccinated," it said.
On the back of the new travel restrictions, the IEA downgraded its forecast for global jet fuel demand in 2022 by around 200,000 b/d from its previous projection to 6.2mn b/d. Although 1.7mn b/d lower than 2019 demand, this would be over 1mn b/d higher than 2021 consumption.
In Europe, some airlines have cut their flight schedules in the near term. Low-cost carrier airline Ryanair has reduced its planned capacity in January by a third. Others are sticking to their plans. Easyjet confirmed to Argus on 22 December that its expectations for the upcoming year are unchanged. It expects to operate around 70pc of 2019 capacity in the first quarter of 2022 and be near pre-pandemic levels by the third quarter.
While demand headwinds persist, jet fuel prices in Europe are drawing support from tight supply. Around 900,000t of jet fuel is currently held in independent storage in the Amsterdam-Rotterdam-Antwerp (ARA) hub, compared with over 1mn t this time last year. Northwest European jet fuel premiums to the North Sea Dated crude benchmark gained over $2.60/bl this month to reach $13.06/bl on 22 December, edging closer to pre-Covid levels. Jet fuel margins in the region averaged a $13.70/bl premium in December 2019.
For most of the pandemic, jet fuel margins in Europe have remained $2.50/bl below diesel margins, but this spread has started to close, narrowing to just 57¢/bl on 22 December. The forward curve suggests jet margins will revert to pre-pandemic trends and surpass diesel by March. This is likely to bring more jet fuel supply into the market, although market participants think it is possible that refinery output across the barrel will remain relatively low if operating expenses, such as the cost of natural gas for hydrogenation processes, remain as high as they are at present.
The anticipated slowdown in air travel demand in the first few months of 2022 could see more jet fuel imports to Europe being diverted to the US, a repeat of what happened during the depths of the pandemic in 2020.
