Jet fuel demand recovery lags behind: Vitol

Jet fuel's demand recovery will struggle even as demand for crude and other oil products are expected to return to 2019 levels by next year's fourth quarter, according to trading firm Vitol's chief executive Russell Hardy during this week's virtual Platts Asia-Pacific Petroleum Conference (Appec) 2020.

The Covid-19 pandemic put a "real handbrake" on the oil market demand, precipitating a slowdown in oil demand from a maximum 102mn b/d to about 82mn b/d in April, which resulted in a 1.2bn bl build of oil. "The market is slowly chewing through that excess inventory," Hardy said. "We've drawn about 300mn bl from that peak and we're expecting another 300mn bl to be drawn as we go towards the year-end. In 2021 we see the market probably drawing similar amounts again that gets us back to normal stock levels towards the end of 2021. So if you look at the way things are recovering then our expectation is that we're going to be at about the 2019 demand levels by the fourth quarter of 2021."

But there is one caveat to that. "Jet fuel recovery is extremely difficult to predict but it has a long way to go, as evidenced by these conferences, people are not moving around and it's possibly going to be some time before we see a normal aviation market and normal aviation demand," said Hardy.

The International Air Transport Association (IATA) forecast global travel demand will not return to pre-pandemic levels in 2019 until 2024, a year later than previously expected. Global air travel demand, measured in revenue passenger kilometres, had also fallen by 79.8pc year-on-year in July, according to IATA data released this month.

Asia-Pacific jet fuel refining margins, or jet fuel swaps against Dubai crude values, averaged an $0.11/bl discount in August and a $1.27/bl discount from 1-14 September, with a resurgence of Covid-19 cases limiting travel demand. Refining margins are also still far removed from the $12.12/bl average in January before the pandemic took hold. There was a worldwide increase of about 11.5mn Covid-19 cases from 1 August until yesterday, bringing the total to about 28.9mn cases as of 14 September, according to World Health Organisation data.

The Asian jet fuel contango, or the discount between front- and forward-month jet fuel swaps, also fell to [over a three-month low](direct.argusmedia.com/newsandanalysis/article/2138573) in early September with higher regional supplies and persisting weak demand. It recovered only slightly to a $1.05/bl discount yesterday.

"Today short-haul [flights] are running about 50pc globally and long-haul [flights] running at about 30pc globally so there is a lot of jet, aviation people movement to recover," Hardy added. A normal market is not going to resume until we have more people circulating around the world again, which obviously is to be discouraged until we've got the pandemic under control."

By Yvette Choo and Sarah Giam