FEATURE: Optimism for US jet fuel retreats amid second virus wave

Participants in the US jet fuel market expect to see little change in demand for the fuel through September, with reports from the second quarter suggesting recovery has decelerated amid a resurgence of the coronavirus.

Cautious optimism spread through the market in the second quarter, when data from the World Health Organization showed new US coronavirus cases had declined for five consecutive weeks and totaled around 1.7 million.

More recently, the number of confirmed cases surged after stay-at-home restrictions eased, with over 5 million cases nationwide by early August. Refiners and airlines alike highlighted the difficulty in predicting future market conditions amid the second wave, trending Q2 projections toward stable or weaker demand at least through September.

Marathon, the US' largest refiner, saw Q2 jet demand down 34% from 2019 but just a 10%-15% decline on the year in July, with demand bolstered by international buyers. Similar growth is not a certainty going forward, with August demand expected to remain flat to July and conditions even less clear further into 2020, according to Brian Partee, Marathon's senior vice president of marketing.

"The thing we're watching right now is what is demand going to look like in September given that a lot of schools are not returning to normal, people are working from home," Partee said. "There is definitely a pent-up demand of folks wanting to move around. So it's a bit of a wild card of what demand is going to look like in September."

While Valero did not provide specific demand statistics for July in its Q2 earnings call, the company noted that August nominations were down on the month, with what CCO Gary Simmons called "renewed efforts to slow the spread of the pandemic" muddling jet demand going forward.

BP also cited weaker jet demand for Q3 so far, down over 70% on the year.

In its Q2 earnings call, Magellan Midstream Partners, which operates refined products pipelines carrying jet fuel throughout the Midwest, said its July demand was down approximately 40% on the year, adding they expected to see the same year-on-year decline for the remainder of 2020.

"Projecting future refined product demand is more of an art than it is a science," Magellan CEO Michael Mears said.

S&P Global Platts Analytics has estimated that US jet fuel demand will average 1.146 million b/d for 2020. Demand the following year should rise by nearly 35% to average 1.54 million b/d in 2021.

Summer demand no savior

The second wave of the US outbreak coincided with a bleak short-term outlook for global jet demand from an airline trade association, as well as a seasonal downturn in air travel as the summer draws to a close.

Implied US jet fuel demand was at 558,000 b/d the week ended May 29, an all-time low, according to the rolling four-week average product supplied data from the Energy Information Administration. While that figure rebounded to 1.03 million b/d for the week ended Aug. 7, the most recent reporting period, it was still down 55.29% from the same time in 2019.

The International Air Transport Association said July 28 that global revenue passenger kilometers, a metric used to signify demand for air travel, was unlikely to return to 2019 levels before 2024.

While Delta Air Lines planned to re-establish some domestic and international routes, its August schedule was expected to be down 60% from the same period in 2019, according to a statement. Breaking down the schedule, domestic service is down 50% while international is down 70%.

United Airlines expected similar trends in September, with its domestic schedule down 60% from the same month in 2019 and its international schedule down 70%, the airline said on its website. United's international schedule, however, was expected to be 5% higher than August.

Southwest Airlines said in its Q2 earnings call it hoped to see a rebound in business travel in the second half of 2020, but the recent surge in coronavirus cases stalled improvement.

"We have been hearing some pretty cautious optimism about [business] travel resuming back in the third and fourth quarters, but certainly, with the recent spike in COVID cases, that is far from what's going to happen," Southwest Airlines President Thomas Nealon said. "It's going to be much lower than we thought."