Jet fuel consumption remains the hardest-hit section of the global oil market as passengers avoid air travel because of the pandemic and government travel restrictions.<\/p>\n
The specific problems of the jet market explain why refinery margins for closely related distillates such as diesel are being hit much harder than benchmark oil prices.<\/p>\n
Jet fuel’s travails have helped push distillate margins to their lowest levels for more than a decade and are undercutting refinery demand for crude.<\/p>\n
Sustained recovery in distillate margins and crude oil prices will therefore depend on a wider resumption of cross-border aviation.<\/p>\n
But an early resumption of long-haul flights is looking less likely than a few months ago, given the\u00a0resurgence of coronavirus cases\u00a0in many parts of the world.<\/p>\n
So an upturn in jet consumption, and with it distillate margins and crude oil prices, depends on one or more of three factors: early deployment of an effective COVID-19 vaccine; alternative methods of infection control (such as rapid testing or improved contact tracing and isolation); or lifting air travel restrictions with or without a vaccine.<\/p>\n
Quarantines and other infection controls have mostly been imposed on a national or occasionally continental basis, and on potentially infective passengers rather than manufactured products.<\/p>\n
As a result,\u00a0passenger aviation has been hit much harder than freight, and within the passenger sector, long-haul intercontinental flights have been more severely affected than short-haul and domestic services.<\/p>\n
Globally, air freight tonne-kilometres were down just 18 per cent in June compared with passenger revenue-kilometres down 87 per cent, according to the International Civil Aviation Organisation.<\/p>\n
In Hong Kong, which has adopted some of the strictest quarantine requirements, air cargo volumes were down just 2 per cent in August from a year earlier while passenger numbers, excluding transit passengers, were down 99 per cent.<\/p>\n
On the passenger side, countries with a large domestic market, including the United States and China, have seen a stronger rebound than countries that depend on international departures and arrivals such as Britain.<\/p>\n
China’s passenger aviation volume was down by about 40 per cent in August compared with the same month a year earlier, based on passenger-kilometres flown, according to the National Bureau of Statistics.<\/p>\n
By contrast, Heathrow airport reported passenger numbers were down by 69 per cent in August for domestic and short-haul flights within Europe, and down by 92 per cent for long-haul flights outside Europe.<\/p>\n
Business-related travel has been hit harder than leisure journeys as a result of the cancellation of conferences and in-person customer visits.<\/p>\n
Most aviation experts\u00a0expect business travel to recover more slowly\u00a0than leisure journeys over the next 12 to 24 months, mirroring the experience after previous business cycle downturns.<\/p>\n
The recession’s lingering effects will encourage corporate managers to focus on cost control even once coronavirus restrictions are lifted, and discouraging discretionary flights is the easiest target for short-term savings.<\/p>\n
Global jet fuel consumption was about 8 million barrels a day in 2019, or about 8 per cent of global petroleum consumption, according to BP.<\/p>\n
But it has been one of the fastest-growing sections of the market over the past decade, with consumption growing by almost 2.7 per cent a year between 2009 and 2019, compared with 1.6 per cent for all petroleum products.<\/p>\n
While jet consumption remains a relatively small component of the total petroleum market, it is much larger compared with the market for other similar middle distillates.<\/p>\n
In 2019, jet fuel accounted for 22 per cent of worldwide consumption of middle distillates, a group of fuels which also includes diesel, heating oil, gasoil and kerosene, and totalled about 36 million barrels a day.<\/p>\n
The pandemic-driven slump in aviation, especially fuel-hungry long-haul passenger aviation, has cut jet consumption by more than half.<\/p>\n
Even with its domestic market, jet fuel consumption in the US is still down by more than 55 per cent compared with levels from a year ago, according to weekly estimates from the US Energy Information Administration.<\/p>\n
Jet fuel, with strict quality specifications, is normally a premium product and makes a big contribution to refinery margins and profitability.<\/p>\n
Following the pandemic, however, refiners have been forced to dump unwanted jet fuel into the broader and less-profitable pool for other middle distillates.<\/p>\n
The diversion of surplus jet fuel has contributed to oversupply and bloated stocks of other middle distillates and is weighing on refining margins.<\/p>\n
In turn, oversupply of distillates and poor margins are incentivising refineries to limit their crude purchases and processing, holding back wider recovery in the oil market.<\/p>\n","protected":false},"excerpt":{"rendered":"
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