Jet fuel prices nosedive as coronavirus drives some US airlines to drop China routes

US jet fuel differentials tumbled across all four regions Wednesday following news that United Airlines and American Airlines had suspended service for China routes on concerns regarding coronavirus.

The Gulf Coast benchmark surpassed six-week lows, assessed at NYMEX March ULSD futures minus 10.35 cents/gal, marking a 1.10-cent decline on the day.

Gulf Coast traders took a wait-and-see approach Wednesday, with no deals done in the Platts Market on Close assessment process for Colonial Pipeline's 9th cycle. But increased selling interest pushed the differential down to double digits, with standing offers at futures minus 10.10 cents/gal.

"I am really unsure how this market is going to go right now," one source said, adding that most participants were likely waiting for more clarity.

On the Atlantic Coast, New York jet fuel for Buckeye Pipeline was down 0.50 cent/gal to February futures minus 0.65 cent/gal. The decline marked a two-day low for the differential, with pricing having crossed into negative territory at the beginning of the week following two weeks of a premium.

West Coast pricing also saw a sharp drop Wednesday, falling 1.50 cents/gal to March futures plus 3.25 cents/gal. Los Angeles pipeline offers trended down over the course of the day, last heard at futures plus 3.50 cents/gal.

In the less liquid Midwest market, the Group 3 differential was down 2.65 cents/gal on the day following a midday trade. The region has experienced volatile pricing in recent sessions amid a slew of refinery issues in the area.

CHINA ROUTE SUSPENSIONS MULTIPLY

Weaker jet differentials across the country came on the heels of news that United Airlines and American Airlines had suspended service for China routes amid the spread of coronavirus.

American Airlines became the most recent US-based airline to suspend routes to China Wednesday, with press reports detailing a seven-week break in service to major hubs in the country.

According to media reports, American Airlines will be suspending its service from Los Angeles International Airport to both Shanghai Pudong Airport and Beijing Capital International airport between February 9 and March 27.

American Airlines' suspensions are not as far reaching as its peer United Airlines, which announced Tuesday that it would suspend flights to Shanghai, Beijing as well as Hong Kong. United's suspension timeline is more narrow, with plans to cancel flights from the beginning of February until February 9, according to news reports.

The suspension will impact United flights out of San Francisco, Newark, Washington Dulles and Chicago O'Hare.

Market feedback confirmed the far-flung effects of route suspensions, with one participant voicing expectations that it will affect "all regions worldwide."

According to S&P Global Platts Analytics, the best-case scenario outlines declines of 900,000 b/d in February and 650,000 b/d in March for total oil demand. In the worst case scenario, due to travel curtailments, demand would drop by a massive and 2.6 million b/d in February and 2 million b/d in March.

Crucially, both scenarios are assumed to be short-lived, as this has been a common trait with the overwhelming majority of the epidemic outbreaks. Platts Analytics, therefore, assumes the impact will fizzle out by June-July.