Viewpoint: USAC jet margins poised to rebound in 2021

US Atlantic coast jet fuel margins are poised to rebound in 2021, as the roll out of Covid-19 vaccines and general quarantine fatigue increases air travel despite health officials urging otherwise.

East coast jet fuel margins — as measured by subtracting North Sea Dated Brent crude oil prices from prompt New York Harbor jet fuel barge values — were down by more than $11/bl in 2020 in year-on-year comparison. Between 2 January and 29 December 2020, Atlantic coast jet fuel barges carried an average premium of $6.38/bl to North Sea Dated Brent, down from 2019's average price spread of $17.53/bl.

Poor margins led Atlantic coast refiners to dial back jet fuel yield to 2.6pc in September, compared to 11.5pc a year earlier, according to Energy Information Administration (EIA) data. Yields were negative or zero for four consecutive weeks in April and early May, indicating refiners were repurposing jet fuel to cut margin losses and avoid accumulating inventory.

As jet margins recover, refiners could increase yields while raising overall crude runs. East coast jet fuel production fell from 60,500 b/d in March to just 11,750 b/d in April before averaging negative during the month of May. Since then, monthly averages have risen gradually with east coast output averaging 39,667 b/d so far in December, according to EIA data.

Jet fuel demand is expected to grow next year as the coronavirus vaccine becomes more readily available. Both North Sea Dated and jet fuel prices have increased on vaccine-related news, with values rising by $7-8/bl so far this month from levels recorded in November. Through 29 December, regional margins have averaged $8.29/bl, up by $0.67/bl from the previous month.

In the latest Short-Term Energy Outlook (STEO), the EIA projects US jet fuel consumption to total 1.54mn b/d in 2021. Compared to 2019 levels, this forecast is down by 37.4pc. But compared to 2020 so far, demand is predicted to be nearly 42pc higher, even though the December STEO revised its 2021 jet fuel forecast 0.80pc lower from the November forecast.

The price of jet fuel for end users is expected to average $1.50/USG in 2021, according to STEO data, down by $0.47/USG from 2019 levels but $0.18/USG above 2020 values. Production is expected to rise with higher demand, with EIA projections for 2021 coming in at 1.59mn b/d, down by 11.7pc from 2019 levels but nearly 53pc above levels recorded in 2020.

The number of travelers passing through US airport checkpoints daily surpassed 1mn once in October, four times in November and seven times so far in December, according to Transportation Security Administration data. These 12 instances are the only times traveler throughput has exceeded 1mn since mid-March, but monthly numbers have improved steadily amid quarantine fatigue.

Since April, when daily traveler throughput fell by more than 90pc from March to an average of just 109,567 travelers per day, the number of travelers passing through US airports has risen every month since, last averaging 850,432 daily passengers in November.

But compared to 2019 levels, traveler throughput remains more than 50pc lower.

By Matthew Keever