US, Latin America jet fuel markets turbulent in May, bearish looking forward

New data for US and Latin American jet fuel markets in May highlighted a struggling sector amid the coronavirus pandemic, joining recent trends to paint a bleak picture for the remainder of the summer.

Monthly US jet fuel exports to Latin America fell to an 11-year low in May, with just under 300,000 barrels sent to the region (excluding overseas territories) throughout the month, according to the latest US Energy Information Administration data.

With exports to the region at 299,000 barrels, volumes were down 62.2% on the month and 90.97% from the same period in 2019, EIA data showed. Only four Latin American countries received US jet fuel during the course of the month, with the total volume divided between end-users in Mexico, the Bahamas, Panama and Nicaragua.

Though EIA data breaking down US jet exports by destination is released with a two-month delay, its more recent weekly data showing total US exports painted a bearish picture for the summer. Weekly US exports of jet fuel averaged 106,400 b/d in May, then trailed off to 78,750 b/d in June and 60,600 b/d in July.

While domestic demand for the fuel showed signs of recovery in early July, appetite for the fuel faltered afterward. The most recent EIA data showed product supplied, or implied demand, at a four-week low of 1.01 million b/d the week ended July 31, down 46.65% year on year.

Those low demand figures have hurt the bottom line for producers in the US. The margin for jet fuel on the US Gulf Coast against WTI crude averaged a 15 cent/barrel profit in May, according to S&P Global Platts pricing data. Though it rebounded to $3.94/b in July, it still significantly trailed the margins for diesel ($8.31/b) and gasoline ($6.81/b).

Demand lags in Latin America

The most recent data from the Latin American and Caribbean Air Transport Association (ALTA) confirmed frail demand for the region in May, with passenger volumes down 95.8% on the year to just 1.48 million passengers.

Revenue passenger kilometers also saw a sharp drop for the month, falling 97.2% to approximately 2.02 billion. Domestic travel within Latin America accounted for 58.7% of RPKs for the month, while intra-Latin American travel accounted for just 3.96%.

That demand hit led to two of the region's largest airlines, LATAM and Avianca, filing in May for Chapter 11 bankruptcy protection, affecting regional flight availability. LATAM exited Argentina, partnered with Azul SA in Brazil and reduced domestic operations in Chile. Avianca pulled out of Peru. Mexico's largest airline. Aeromexico, also filed for Chapter 11 protection in late June, citing strained operations aggravated by the pandemic.

"The situation in June will be very similar, despite the fact that we began to see a reactivation of some markets such as Ecuador, with reduced capacities compared to 2019," ALTA said in a report July 9. "Only in July will we begin to see the results of greater openness in the Caribbean, mainly."

Some countries have resumed flights to varying degrees, though others have doubled down on existing travel restrictions. Argentina refused to resume domestic or international flights before Sept. 1. Colombian transportation minister Angela Orozco announced that international flights into the country would not resume before Aug. 31.

Peru, meanwhile, resumed domestic flights on June 15, followed by plans to resume international flights by early August. Others, such as Mexico and Ecuador, also resumed international and domestic flights in June, though Ecuador implemented a 30% capacity restriction.

A number of islands in the Caribbean, such as Aruba, the Dominican Republic and Jamaica, also recently opened to international travelers, though tourists are required to present negative coronavirus disease test results upon arrival with foreign nationals returning to their native countries subject to additional restrictions.