Commodity Tracker: 5 charts to watch this week

How is energy demand faring across different sectors and regions amid the evolving coronavirus pandemic? In this week's Commodity Tracker, S&P Global Platts editors look at global aviation, Chinese fuels consumption, Brazilian power demand and European refining, as well as US LNG output.

1. Lift in air travel helps jet fuel but demand still far from normal

What's happening? Global aviation continues to recover and global kerosene/jet fuel demand is tracking the pattern closely. Even so, global flights are still running only 61% of pre-pandemic norms, with international travel lagging the recovery in domestic travel. China's domestic air travel has largely normalized back to pre-pandemic norms. Recovery of flights in developing countries, such as Brazil and India, has lagged the recovery in the US, Europe, and China. Through the pandemic, global jet fuel has suffered the most of any petroleum product, and the fuel remains at a significant discount to gasoil, where it would normally be at parity or a slight premium.

What's next? International air traffic recovery will be particularly important for jet fuel recovery, as long haul flights use proportionately more fuel than domestic flights. As jet demand picks up further and prices rise, this could potentially help support gasoil margins, which should help refiners.

2. China Q3 GDP up, but ailing aviation, manufacturing to cap fuel demand

What's happening? China's economic growth stood at 4.9% in the third quarter and is expected to expand to 5.2%-5.7% in Q4, putting Asia's biggest energy consumer on track for a recovery in fuel and commodities demand. China's crude oil throughput rose 7.5% year on year in Q3, compared with 5.7% in Q2.

What next? Amid dismal global economic growth, China's goods and services exports may continue to suffer, keeping the country's manufacturing sector under pressure and capping factory operations and industrial fuel demand. In addition, China's jet fuel consumption outlook remains bleak despite the recent sharp recovery in domestic flight operations, as international travel remains largely restricted. S&P Global Platts Analytics expects China's oil demand to trend lower year on year by 250,000 b/d in Q4, after two quarters of growth, due partly to a high base last year and as state-backed industrial activity growth fades out without further stimulus measures. China's kerosene/jet fuel demand will average 710,000 b/d in Q4, down year on year by 280,000 b/d. High oil stockpiles and a sluggish export outlook will likely keep industrial fuel consumption and refinery run rates limited.

3. Hydro, growing solar PV meet rise in Brazilian power demand

What's happening? Brazil's daily power demand in October so far is about 5% above 2019 levels. Power loads have been trending higher over the past couple of months, underpinned by increased industrial activity and higher exports. Power data by sector shows strength in key energy-intensive industries, especially metals and non-metallic minerals. In tandem with higher demand, hydro generation has increased by over 14%, and solar PV generation is 4% higher, on a year on year basis. Growth of solar PV capacity has exceeded expectations, with 2.3 GW of solar PV capacity added in 2020 through August, with a larger increase for distributed units. Wind generation, another key power source in Brazil, is down on 2019 in October, allowing for a less severe fall in thermal generation.

What's next? Although the increase in power demand is an encouraging development, growth has also faded in recent days in part due to weather developments. The impact of temperatures on power demand will be increasingly important as Brazil moves toward the warmer months of the year, but the country's economic recovery remains fragile.

4. Europe's refiners face make-or-break as second wave gathers pace

What's happening? European refiners are gearing up for a long, hard winter as a second wave of coronavirus infections threatens to wipe out a rebound in oil demand. Many refiners have already made steady cuts to their runs this year but more defense strategies may be needed in the fourth quarter as partial lockdowns start to engulf Europe. The pandemic dragged refining margins down to the lowest in over three decades as high-value oil products such as diesel, jet fuel and gasoline were at times trading below crude prices.

What's next? The next six months will be critical for European refineries with more run cuts likely. They will be banking on a cold winter to increase distillate demand. A cold spell across Europe could boost demand for 0.1% gasoil, 50 ppm gasoil, ultra-low sulfur diesel as well as kerosene demand into the UK. The greater worry is however the future of some of Europe's refineries, and recent events are likely to accelerate closures. Some will have no option but to close while others will have to adapt and diversify.

5. US LNG activity in full swing as winter looms

What's happening? Utilization at US liquefaction terminals is near pre-pandemic highs as Asian prices have seen a more than threefold jump since historic lows in April. Gulf Coast LNG netbacks from Platts JKM rose to a new year-to-date high recently as tendering activity in Northeast Asia has picked up.

What's next? Strengthening in the US Henry Hub and rising freight costs are unlikely to dampen strong market demand for spot LNG in the near-term. That, combined with customer cancellations of cargoes scheduled to be loaded in December, should incentivize robust activity at US export terminals through the remainder of the year.

Reporting and analysis by Alan Struth, Bruno Brunetti, Oceana Zhou, Eric Yep, Phil Vahn, Harry Weber, Eklavya Gupte, Virginie Malicier