NWE jet fuel complex sinks further as airlines face up to existential threat

London — With the global aviation industry facing the bleakest period in its history as airlines slash flights in the face of the coronavirus pandemic, European jet fuel values plummeted to new lows Monday.

Some of the world's biggest airlines are slashing more than 70% of their flights for the coming months, and jet fuel demand, which accounts for almost 8% of total oil demand, is taking an unprecedented hit.

The jet CIF NWE balance month differential swap to ICE low sulfur gasoil futures traded further into negative territory Monday, going as low as minus $13/mt in the morning session, after being assessed at an all-time record low of minus 50 cents/mt Friday.

This will likely drive physical premiums, which are assessed later in the day, lower.

The jet cargo physical premium to front-month ICE LSGO futures fell $2.75/mt on the day to an all-time record low of $4.75/mt Friday, with similar values observed on Monday morning, traders said. The previous record low was $6.50/mt in March 2015.

"It feels like a bad dream; quite unbelievable. It feels like the market will drop further on flat price... this is horrendous for global trade," said a Europe-based jet fuel trader.

"It doesn't look like the physical [jet] market can be resilient much longer. People trying to figure it out, there will be dramatic changes," said another jet fuel trader. "I think there is still storage left, people haven't filled yet but they will... storage demand is the only demand left," he added.

Meanwhile, ICE Brent crude futures dropped to their lowest level in over four years Monday as global financial markets slumped despite the announcement of new global monetary measures to tackle the COVID-19 pandemic.

May ICE Brent slumped to $29.52/b during the London early afternoon trading session, its lowest since January 26, 2016.

Turbulence ahead

The International Air Transport Association has sounded the alarm saying many airlines are under severe cash-flow pressure due to extraordinary travel restrictions caused by coronavirus pandemic.

"This is a liquidity, rather than a solvency, crisis as many were generating substantial investor returns and had strengthened balance sheets before COVID-19," it said in a statement late-Friday. "The limited extent of cash balances will mean the industry will need to draw on credit lines or find other means of support during this crisis period."

Ryanair, the world's largest budget airline, said Monday it has had to cancel up to 80% of its flights for April and May, adding that a "full grounding of the fleet cannot be ruled out."

"Ryanair is taking immediate action to reduce operating expenses, and improve cash flows," it said in a statement. "This will involve grounding surplus aircraft, deferring all capex and share buybacks, freezing recruitment and discretionary spending, and implementing a series of voluntary leave options, temporarily suspending employment contracts, and significant reductions to working hours and payments," it added.

The International Airlines Group, which includes British Airways, Vueling and Iberia, announced Monday that it plans to reduce capacity by at least 75% compared to the same period in 2019 for both April and May.

Over the weekend, American Airlines announced plans to cut 75% of its international flights through May 6.

Elsewhere in the world, Argentina, Chile, India and Peru have banned or are restricting inward travel, on top of suspensions into China and elsewhere in Asia.

Virgin Atlantic has asked the UK government to help the country's aviation industry, asking for an immediate aid of around GBP5-7 billion. And more European airlines are pushing for their governments to help in aid and loans to cope with the coronavirus crisis.