Jet fuel prices take flight as vaccine roll-outs spur hopes of more air travel

By Koustav Samanta, Ahmad Ghaddar and Stephanie Kelly

SINGAPORE/LONDON/NEW YORK (Reuters) - Global jet fuel markets are coming back to life, resuscitated by a rebound in air cargo demand, gradually recovering passenger traffic and hopes that COVID-19 vaccines will spur more international flights in 2021.

The pandemic brought air travel to a virtual halt this year, and analysts say it may take years before global appetite for jet fuel returns to pre-pandemic levels.

But refining profits for the fuel surged to multi-month highs in all key trading hubs in December on hopes of higher demand in 2021, with U.S. and European margins underpinned by a recovery in air cargo volumes and Asian margins also by a rebound in domestic travel and heating consumption.

Graphic: Global jet fuel margins by region https://fingfx.thomsonreuters.com/gfx/ce/nmovabjbepa/GlobalJetcracks.png

Jet refining margins in Asia - the world's top fuel market - have soared 580% and export prices by 45% since mid-September to their highest since March. Domestic air travel picked up as some countries eased coronavirus curbs.

"We expect vaccines will become available by (the) end of Q1 2021 and some travel restrictions will remain in place," said Qiaoling Chen, research associate at consultancy Wood Mackenzie in Singapore, forecasting Asian jet fuel demand at 1.4 million barrels per day (bpd) in the first quarter of next year.

Graphic: Global jet fuel prices https://fingfx.thomsonreuters.com/gfx/ce/xegpbbmeqpq/GlobalJetFuelPrices.png

The consultancy expects appetite for jet fuel in the region to hit 1.3 million bpd in the fourth quarter of 2020, up by 460,000 bpd from Q2, but still 41% below the same period in 2019.

"TIRED OF NOT TRAVELLING"

In the United States, margins to refine crude into distillates, which includes jet fuel, have about doubled since mid-September to more than $13 a barrel, but are still about $10 per barrel below year-ago levels, according to Refinitiv data.

Artyom Tchen, senior analyst at Rystad Energy in Norway, said U.S. jet fuel demand is currently around 1.34 million bpd, 30% off pre-coronavirus levels in January. International flights account for over 60% of global appetite for jet fuel.

Graphic: Global passenger vs cargo flights https://fingfx.thomsonreuters.com/gfx/ce/yzdvxjrjlvx/GlobalPassengervscargoflights.png

"We will see the demand recovery going forward, but it will take some time and is especially dependent on how quickly international traffic volumes from the U.S. recover," he said.

While passenger air travel globally has recovered from its plunge to near total stoppage in May, the number of scheduled flights remained around 45% below year-ago levels in November.

Cargo traffic, however, has recovered far more briskly, and in October was only 6% below year-ago levels thanks to booming e-commerce.

Global air cargo demand is expected to receive a further boost as airlines prepare to play a key role in mass vaccine roll-outs.

Graphic: Jet fuel inventories by region https://fingfx.thomsonreuters.com/gfx/ce/qzjvqdedgpx/JetFuelStocks.png

Against this backdrop, European jet fuel margins rose above $4 a barrel for the first time since March this month, after falling deep into negative territory in April-May at the height of regional lockdowns.

Graphic: Global air market share https://fingfx.thomsonreuters.com/gfx/ce/dgkvlqxqopb/AirShare.png

JP Morgan pegs European jet fuel demand at 700,000 bpd in the third and fourth quarters of 2020. That is up from around 400,000 bpd in the second quarter but around half the 1.3 million bpd seen in the first quarter.

"It (jet fuel) may pick up in Q2 (2021). At least I hope it does. We are all tired of not travelling!" said Sukrit Vijayakar, director of energy consultancy Trifecta.

(Reporting by Koustav Samanta in Singapore, Ahmad Ghaddar in London, Stephanie Kelly and Laura Sanicola in New York; Editing by Gavin Maguire and Ana Nicolaci da Costa; ((koustav.samanta@thomsonreuters.com)(+65 6870 3503)(Reuters Messaging: koustav.samanta.thomsonreuters.com@reuters.net)