Analysis: Road fuels outpacing jet as the nature of travel changes

London — Across Europe consumers are opting for domestic holidays and destinations reachable by car this summer, widening the chasm between recovery in jet and road fuel demand.

According to traders, some consumers are afraid to fly in light of the coronavirus pandemic, and others fear a quarantine may be imposed on their return. Further, other travelers want to avoid the risk of cancellations. All of this means that many travelers would prefer to stay closer to home. And this preference for domestic tourism has provided support to diesel markets.

S&P Global Platts data shows the NWE jet fuel barge crack against ICE Brent was assessed Aug. 12 at a $5.57/b discount to the diesel crack -- a relationship that has held fairly steady over the past few months.

Typically the jet crack is at a premium to diesel and hit a one year high on January 27 of $1.68/b before the pandemic.

Gasoline cracks have fared better as well. Platts assessed the 10 ppm Eurobob crack to ICE Brent at $2.40/b Aug. 13, compared to minus 50 cents/b for jet.

"In Turkey, for example, international tourism is down, but domestic tourism is booming," a Mediterranean diesel trader said. "The coronavirus situation is still difficult there but people want the summer break, they are trying to go somewhere else so they use their cars more."

"Overall demand for diesel is not too bad in Germany, there is no lockdown and agricultural demand is okay, however storage levels are quite high for ULSD and heating oil and there is a kind of oversupply anyway in the whole of Europe," another diesel trader said. "There are a lot of domestic holidays in Germany, so more people are using gasoline and diesel rather than jet fuel."

In Spain, diesel demand in July fell 11% year on year to 2.2 million cu m (1.9 million mt), a narrower decline than the 15% fall in June, 32% in May and 43% in April, Spanish national fuel distributor Compania Logistica de Hidrocarburos (CLH) said August 3.

Spanish gasoline demand was down just 8% year on year at 501,000 cu m (376,000 mt), recovering from declines of 25% in June, 58% in May and 79% in April, the data showed.

This is in stark contrast to jet fuel demand which was down 75% year on year at 190,000 cu m, up from the 158,000 cu m total demand across April to June, which according to national reserves agency CORES saw the lowest quarterly fuel demand on record back to 1996.

The International Energy Agency said Aug. 13 that longer term, global jet fuel demand is expected to fall by 39%, or 3.1 million b/d this year.

Jet fuel forward curves illustrate this. The year-one (cal 2021) jet fuel swap to ICE gasoil hit $8.50/mt Aug. 13, lowest on record in data going back to 2001.

Global flying capacity fell below 60 million seats for the week starting Aug. 10, and is 50% below last year's level, according to aviation information provider OAG on Aug. 10.

Jet woes to continue

One jet fuel trader said the short-term outlook for the jet fuel market in Europe remained grim.

"There is so much product on the water, all tanks are full, a million tons in tank, there is 2 million tons laying in the water, there is so much jet in store on water," he said.

"The only thing that we see is quite a lot of cancellations at the end of August, particularly for Egypt, Morocco and Turkey, otherwise we have network which is scaling up a bit from July to August yet, if there are more cases of COVID-19, domestic airports are closed," he said.

The trader said that while some international flights have restarted from Europe to South America, North America and China, the number of long-haul flights remained very small. According to him, refiners produce more jet fuel than they can store, crack is on the negative and there is already a maximum amount of jet fuel blended into diesel.

"You can't store jet in diesel tanks so there isn't really any more places to store jet even if diesel stocks are falling," he said.

Road fuel recovery

Mobility data shows what is driving the strength in European diesel demand.

Google's Community Mobility Report shows rising mobility across Germany, France, the UK, Italy and Spain since April. The data shows a sharp increase in mobility to parks since May and June, overtaking mobility to workplaces that declined in July and August.

Average mobility to Parks across Germany in August so far was 163% higher than the baseline which was the median value from the five-week period from January 3 to Feb 6, 2020, Google data shows.

Mobility to workplaces increased towards June, but then started to decline in July as holiday season kicked in, with this trend continuing into August.

In the UK, transport data released by the Department for Transport has shown a change in the way consumers travel. July saw car travel at an average of 83% of baseline levels. Further, weekend car travel has been much higher than during the week, with levels reaching 102% of baseline levels on Aug. 9.