US jet demand rises as coronavirus lockdowns ease

New York — US jet production is rising to meet growing demand as cautious fliers return to the sky amid the loosening of coronavirus lockdown restrictions, government inventory data showed June 17.

Jet demand rose 11% for the week ended June 12 to reach 788,000 b/d, according to weekly Energy Information Administration data. This is considerably higher than the 352,000 b/d reported the week ended May 8 -- the weakest rate since the EIA began collecting the data in 1982.

Despite the increase, demand for the fuel is still half of what it was in the beginning of 2020.

"Passenger counts have begun to grow over the last month, topping the 500,000 mark this past weekend and are up five-fold from the lows, though still down by 80% year-on-year," according to a blog post by John and Robert Auers of Turner, Mason & Co..

Using passenger data provided by the Transportation Security Administration as the metric to determine volume, they point out that TSA screenings averaged 2.4 million/d in May 2019, and are on track to exceed 2.5 million/d in June.

"This early bounce back has been as strong as could be expected, with week-over-week growth running at about 25% since early May," they added.

Jet demand is rising

As passengers begin to feel more comfortable about their return to the flying, jet fuel demand is inching higher and is expected to continue to rise throughout the year

Recent estimates by S&P Platts Global Analytics anticipates June jet demand to rise to an average 679,000 b/d in June from May's 453,000 b/d, and continue on an upward trajectory to reach 1.550 million b/d in December.

Refiners are also seeing an improvement in cracks for both jet and ULSD. And given the rising jet cracks have for the most part stopped using jet fuel to blend into with ULSD as seen earlier in the year.

This has supported increased jet production, with US Gulf Coast refiners producing 417,000 b/d – the highest volume in 10 weeks. On the US West Coast, production totaled 188,000 b/d in the most recent reporting period, up 46% from all-time lows seen in the week ended May 8 at 129,000 b/d.

But fears of coronavirus contagion have airlines rethinking their operations in an effort to entice fliers back into the air, and some of their actions bode well for the rise in jet demand.

Delta Air Lines, the nation's second largest airline, said it would add 1,000 flights system-wide in July.

It has instituted safety measures to prevent the spread of coronavirus, including capping cabin seating at 60% in the main cabin and 50% in first class and blocking middle seats through September 30, 2020.

These actions are likely to lower the aircraft load factors which have averaged about 85% over the past five years.

"We expect limited ability for the industry to improve load factor much above 0.85 going forward; and in fact, it will likely decline in the short term as airlines add capacity," according to the Auers' blog.

Differentials rise as demand grows

Jet fuel values have reflected mounting demand, with differentials on the three coasts hitting multi-week—if not multi-month—highs.

S&P Global Platts data shows benchmark Gulf Coast jet fuel hit a four-week high in the third week of June, assessed at NYMEX July ULSD futures minus 13 cents/gal on June 15.

This marked the strongest differential since May 19, when value was assessed at the same level. At the height of travel restrictions and resulting demand destruction, the differential hit a two-decade low of futures minus 44.25 cents/gal on March 23.

The New York jet fuel Buckeye Pipeline differential hit similar lows at this time, falling as low as futures minus 40.25 cents/gal on March 23. More recently, value was assessed at a three-month high of futures minus 10 cents/gal on June 16.

The benchmark Los Angeles differential also reached three-month highs in June, rising as high as futures minus 1 cent/gal on June 1.