REFINERY MARGIN TRACKER: Jet fuel demand recovery supports refining margins

Refining margins are finally seeing support from jet fuel demand growth, an analysis from S&P Global Platts showed June 1, with travelers taking to the sky amid increasing coronavirus vaccinations after prolonged lockdowns.

Add in the start of summer holidays for much of the world and jet demand is picking up. The Platts Global Jet index reached $1.75272/gal for the week ended May 28, the highest since mid-January 2020, led primarily by increased demand in the Western Hemisphere.

US refiners on recent first quarter earnings calls noted while both gasoline and diesel demand have rebounded to near or better than pre-pandemic levels, jet fuel demand had remained the laggard at about 76% of normal levels in early May.

However, US jet fuel demand, which bottomed out at 576,000 b/d in May 2020, averaged 1.158 million b/d in March 2021 and increased to 1.4 million b/d for the week ended May 21, according to US Energy Information Administration data.

And as more planes return to the skies, refiners have pulled back on blending jet into their ULSD pools and returned to more normal output. Jet fuel comprised about 10% of refinery net production in March 2021, compared with the 5% in May of 2020.

"Demand for travel is coming back as vaccinations have increased across the country," American Airlines CEO Derek Kerr said May 25 at the Wolfe Global Transportation and Industrials Conference.

"Leisure bookings remain strong, both in the US and destinations to Mexico, Caribbean, and Latin America," he said, adding business and long-haul international travel are "beginning to show encouraging signs."

Platts North American and Latin American Jet Indices both surpassed the Global index, averaging $1.78/gal and $1.80/gal, respectively, for the week ended May 28.

"Many of our corporate customers ... have told us they plan to get back to travel in the weeks and months ahead," Kerr said. "Travel restrictions are being revised and lifted in certain parts of Europe as well, which we expect will continue ...as vaccinations are rolled out."

Europe's vaccine certificates

To ease travel between nations, several European countries put into play June 1 a digital green certificate which records if one has been fully vaccinated against the coronavirus, recovered from the coronavirus or tested negative for the virus within the last 72 hours. The European Commission said the system will be used in all 27 EU countries as of July 1.

The EC is also in talks with the US about how to verify vaccination status of US visitors. Cross-border travel is expected to grow internationally, increasing jet demand and providing support for refining margins in both Europe and the US.

According to data from Radarbox.com, European commercial air traffic volumes rose in the week ended May 28 but still were at 65% of 2019 levels. S&P Global Platts Analytics expects European jet fuel demand to reach 1.2 million b/d by December, 13% below 2019 levels, as the recovery for jet lags that of other fuels.

Still even the slow demand growth is providing some support for margins. Agbami cracking margins for Northwest European refiners averaged $5.86/b for the week ended May 28, compared with the RIN-less margin of $7.28/b for refiners on the US Atlantic Coast, according to Platts Analytics data. Both were slightly lower than the week earlier, due in part to the rising price of crude oil.

However, on a quarterly basis, both regions showed lower margins when compared with 2019's pre-pandemic levels. The NWE and RIN-less USAC cracking margins have averaged $5.15/b and $7.02/b, respectively, so far in Q2 2021, compared with $7.02/b and $8.21/b in Q2 2020.

Asian jet recovering

Asian refining margins remain soft, with most Singapore margins in negative territory on weak demand across the product slate. But that appears to be changing as new coronavirus cases in India fall, with New York Times data showing a 45% decline over the past two weeks from the early May peak.

"The downturn in India's aviation and mobility appears to be turning," said Alan Struth, Platts Analytics analyst, in a recent research note.

Volumes of physical jet traded in Singapore during the Platts Market on Close assessment process rose dramatically to a total of 1.15 million barrels in May, from zero in April, on firmer US West Coast demand and regional supply shortages.

Singapore Airlines said its passenger traffic grew more 10 times in April 2021 from April 2020 to about 24% of April 2019 levels.

Urals margins for Singapore refiners inched up to minus 28 cents/b for the week ended May 28, from minus 34 cents the week earlier. Chinese margins for Urals also gained, averaging minus 69 cents/b for the week ended May, compared with minus 74 cents/b the week earlier.