Viewpoint: Rising USWC jet production hints at recovery

US west coast jet fuel refiners are starting to reclaim the market share they lost to importers during the Covid-19 pandemic, possibly signaling the beginning of a demand recovery.

The Covid 19 pandemic has slashed demand for air travel and jet fuel across the US, but on the west coast, importers have increased their share of the diminished market at the expense of refiners.

Imports accounted for 31pc of jet fuel consumption in the US west coast in the March-September period, compared with about 20pc during the same period in 2019, according US Energy Information Administration (EIA) data.

During the same period, US west coast jet fuel production tumbled by 53pc. West coast jet margins sank to $5.08/bl in March-September from $17.53/bl a year earlier. The crack spread in Southern California has since climbed to $8.87/bl for the fourth quarter, through 24 December.

In recent months, however, the production gap has steadily narrowed, a strong signal for demand recovery.

West coast jet production bottomed in August at 780,000 b/d, a drop of over 61pc from a year earlier. Since September, the four-week production average has steadily grown, with the first three weeks of December rising to within 43pc of 2019 levels.California, the largest producer, consumer and importer of jet fuel on the west coast, saw jet output climb to the highest since 27 March early in December. The most recent report from the California Energy Commission (CEC) showed regional jet fuel production at around 169,000 b/d, reflecting a 132pc increase from the lowest level in May this year (73,000 b/d).

Meanwhile, west coast jet imports have held steady. Imports during the March-September period averaged 95,000 b/d, about 14pc lower than the same period in 2019. Import averages remained at 99,000 b/d though the first three weeks of December.

Jet fuel imports from South Korea typically slow in winter, when refiners in the Asian country tend to increase kerosene yield at the expense of jet fuel, providing more support for higher production in the US west coast in the coming months.

Southern California jet fuel prices on 18 December rose to $1.44/USG, the highest in nine months as Nymex futures also notched a nine-month high, potentially signaling higher demand. Prompt Los Angeles jet fuel prices averaged $1.49/USG over 10 days through 24 December, the highest ten-day average since early March.

By Craig Ross