European jet fuel market at multi-year lows as COVID-19 hits demand

New York — European jet fuel values have fallen to a multi-year lows amid little sign of demand as coronavirus continues to spread and with an influx of product expected from Asia, where air travel has been curtailed.

Refinery run cuts in response to the drop in demand were the main supportive factor, sources said Wednesday.

The balance-month CIF NWE jet differential swap was assessed at a $12.75/mt premium to ICE low sulfur gasoil futures Tuesday, the lowest since November 2015, S&P Global Platts data showed. The equivalent front-month swap was assessed at $18.00/mt, the lowest since January 2016.

In the physical market, CIF NWE jet cargoes were down to a $12.50 premium to ICE LSGO futures, the lowest since October 2015, while FOB FARAG jet barges slumped to a $7.50/mt premium, a level not seen since November 2015.

"There are lots of flight cancellations. Hearing that any improvement is not expected until the end of Q2," a trader said.

American Airlines and Delta both suspended service to Milan's Malpensa airport Tuesday over the implementation of strict quarantine restrictions in northern Italy.

"There are still pockets of demand but it is generally all pretty quiet," a second trader said.

Looking ahead over the next few months, interest for jet fuel remained weak even when traders discuss the European summer travel season as consumers hold off booking holidays.

"The coronavirus epidemic is leading to record reductions in demand, primarily in China but with ripple effects globally especially for jet fuel. Global jet fuel demand is lower by more than 0.6 million b/d over January-March," S&P Global Platts Analytics said recently.

In terms of production of jet fuel, "the [jet] demand impact seems so big, for sure less production [as a result of refinery run cuts] is always a good take" a third trader said.

Markets sources said that producers will also begin to blend jet fuel into the diesel pool in an attempt to utilize the excess supply and balance the market.