Jet fuel demand set to increase 30% in summer

The airline industry is at a critical inflection point. Regular vaccination deployments and declining infection rates in most Western economies allow commercial travel to resume after more than a year of stoppage. Altered vacation trips, postponed family reunions, newborn meetups, weddings, attending memorial services for loved ones are the new normal – Everything pent-up travel demand should trigger a 30% increase in jet fuel demand during the summer compared to the levels of the first trimester.

Yet jet fuel remains one of the most important weak links in the bullish thesis of oil, with demand for aviation fuel fully recovering to pre-pandemic levels not expected to arrive until 2023.

According to the International Energy Agency (IEA), summer air travel will be predominantly dominated by short-haul flights, which are expected to account for nearly two-thirds of the total fuel used by the sector. Unfortunately, this category of flight uses on average about 35 times less fuel than long-haul flights.

“You see that the number of passengers is recovering, but they are traveling shorter distances, so the relationship between the number of passengers and the demand for jet fuel is distorted.. For full recovery, we also need international travel to recover, and for that we need to achieve a certain level of vaccination, not just in a few countries ”, Cuneyt Kazokoglu, head of oil demand analysis at FGE, told Reuters.

Jet fuel request

According to the United States Energy Information Administration (EIA), jet fuel demand is expected to reach 1.47 million barrels per day in the third quarter, up from 1.13 million in the first quarter and more than 50% higher than a year earlier. Related: Hot Middle East Summer Could Drive Oil Prices Up

Global jet fuel demand is expected to reach 5.8 million barrels per day (bpd) in the current year, nearly 30% above 2020 levels, but well below the 8 million bpd of 2019 before the pandemic.

Source: Bloomberg

Despite the continued buzz, there is a huge disparity in flight bookings, with many countries with successful vaccination programs remaining reluctant to allow unlimited travel.

Britain last month authorized the resumption of international travel from May 17, but limited number of destinations open for holidays without quarantine in 12 countries.

The number of passengers in the United States has increased while those in India and Japan have declined. According to the TSA, passenger traffic in the United States on June 6, 2021 stood at 1.67 million against 942,000 at the start of the year. However, that number is considerably lower than the 2.27 million recorded a year ago.

Meanwhile, China is standing out because its flight capacity has even surpassed pre-pandemic levels.

Unfortunately, the same cannot be said for professional traffic.

While domestic leisure traffic is almost back to 2019 levels for many U.S. airlines, business traffic remains nearly 80% below pre-pandemic levels, a major factor holding back a wider rebound .

Related: NNPC: Lack Of Investment Could Push Oil To $ 200

For example, even with the flights added for June, bookings at United Airlines Holdings Inc. will still be only 67% of its domestic schedule compared to June 2019.

Another worrying signal: the delay in margins on jet fuel.

Although the average price of a gallon of jet fuel Increased 80% from a year ago to $ 1.79, a lack of “better traffic” results in lower overall margins and a slower recovery for the industry due to low fares.

Stimulate demand

Fortunately, the oil industry can count on encouraging driving trends to continue to support the recovery in oil prices.

Wall Street continues to be largely bullish on the oil sector, with some analysts claiming that $ 80 a barrel in the summer is now in the crosshairs.

John Kilduff of Again Capital predicted that Brent would hit $ 80 a barrel and WTI would trade between $ 75 and $ 80 in the summer, thanks to strong demand for gasoline. Brent is currently trading at $ 71.63 per barrel, while WTI is changing hands at $ 69.13.

Unleaded gasoline was selling for an average of $ 3.07 a gallon Thursday, more than 50% more than a year ago, according to AAA.

The demand is going up very quickly because everyone is driving, and we have the reopening of Europe, which is really starting to happen, as India seems to have hit an inflection point, in terms of cases, which in my mind could mean you get back mobility,“Francisco Blanch, global commodities and derivatives strategist at Bank of America, told CNBC.

Oil prices continued to recover, with WTI trading at $ 70.31 a barrel Thursday morning as a barrel of Brent changes hands at 72.62, levels they last touched in 2018.

Although the rally appears to be winding down, oil bulls remain confident in the outlook for demand, with accelerating vaccinations allowing people to travel more. Meanwhile, the technicalities seem to be on their side: the Dubai Middle East benchmark is trading in its biggest pullback in almost a year – a good indicator of supply tension.

By Alex Kimani for Oil Octobers

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