APPEC: COVID-19 puts brakes on oil demand, jet fuel recovery to lag - Vitol execs

The global coronavirus pandemic has caused a massive dent in global oil demand, with the transportation sector, particularly the aviation industry's jet fuel demand most severely affected and its recovery expected to lag that of other oil products, Vitol's CEO, Russel Hardy, said Sept. 14.

"There's nothing really in history that compares to the absolute slowdown in oil demand that occurred in March-April and the result of that was around 1.2 billion barrels of build in oil stocks," Hardy said during an interview session at the 36th Annual Asia Pacific Petroleum Virtual Conference, or Platts APPEC 2020.

"Obviously some of them are in onshore storage tanks, some are [in floating storage vessels] on water. The market is now slowly chewing through that excess inventory and we've drawn around 300 million barrels from that peak... we expect to draw another 300 million barrels towards the year end," Hardy said.

"In 2021, we will probably see the market drawing a similar amount again that gets us back to normal stock levels again towards the end of 2021," he added.

Oil products recovery

"If you look at the way things are recovering, then I think one expectation is that we're going to be at the 2019 demand levels by the fourth quarter of 2021 meaning that diesel, gasoline will have recovered to pre-pandemic levels...but there is one caveat to that," Hardy said. "So that's normal demand [likely recovered] with the exception of jet fuel."

Jet fuel demand is difficult to predict, but it has a long way to go, Hardy said.

"Today, short haul is running at about 50% globally and long haul is running at about 30% globally."

"There is an awful amount of jet, aviation, people movement to recover and obviously the normal market is not going to resume until we've got more people circulating around the world, which obviously is to be discouraged until we've got the pandemic under control," he said, adding that "most of us would be happy to see the back of these challenges".

This sentiment was resonated by another Vitol executive in a separate session at the same event.

"In terms of demand outlook, we forecast all oil products to register a recovery next year except for jet fuel," Vitol's global head of research, Giovanni Serio, said. Demand will not be there unless there is a super optimistic scenario like the discovery of a complete vaccine, he added.

Jet fuel prices tumble

As nations continue to shut its borders or have strict travel restrictions in place to prevent the widespread of the coronavirus pandemic, jet fuel prices tumbled sharply as air passenger traffic trickled to a drip.

According to the Association of Asia Pacific Airlines in late August, international border closures have affected more than 50% of destinations worldwide, and Asia-Pacific airlines carried only 844,000 international passengers in July, marking a 97.47% plunge from July 2019. At that time, the AAPA said that offered seat capacity was at 8.3% of the level operated in 2019, resulting in a low 33.2% average international passenger load factor for the month.

Trading companies do not necessarily pay much attention to outright prices, but focus instead on spreads and differentials, Serio said. Jet fuel crack spreads and margins would remain under significant pressure looking ahead, Serio added when asked about the oil price outlook during a panel discussion at APPEC 2020.

As of 0830 GMT on Sept. 11, the FOB Singapore jet fuel cash differential was assessed at a discount of $1.20/b to the Mean of Platts Singapore jet fuel/kerosene assessments, widening $1.57/b since the beginning of the year. The FOB Singapore jet fuel/kerosene cash differential was last in positive territory on Feb. 28, at MOPS jet fuel/kerosene assessments plus 1 cent/b, Platts data showed.

"I think demand is still very weak due to the resurgence of the coronavirus pandemic. Look at India and Indonesia, they have lost control of the situation, and suppliers are not producing any additional jet fuel because refining margins are so bad," a Singapore-based refining source said on Sept. 14.

As of 0830 GMT on Sept. 11, the FOB Singapore jet fuel crack against front month cash Dubai stood at minus $2.44/b, down $17.06/b since the beginning of the year, Platts data showed.

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