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In oil markets, variation in air travel activity between regions suggests jet fuel demand recovery has some way to go, while on the supply side, US rig counts and capital discipline are indicators to watch. Plus, big themes in EU and US gas.

1. China, US lead air travel revival as clouds hang over other key jet markets

global air traffic 2021 vs 2020 2019 by region

What's happening? In the US, the world's biggest economy and jet fuel market, domestic flights have rebounded sharply since the start of the year and stand at 76% of 2019 levels, according to tracking data, supported by a swift vaccine rollout and massive stimulus spending. In China, domestic flights are already well above comparable dates in 2019. Still, global air travel is on average still less than two-thirds of comparable 2019 levels and a full recovery is some way off. New lockdowns in Europe and India to curb rising infections are still stocking concerns over the pace of the demand recovery for jet.

What's next? S&P GlobalPlatts Analytics sees jet and kerosene demand in the US and China recovering to 1.54 million b/d and 990,000 b/d, respectively, by the year-end, equivalent to 89% and 97% of demand at end-2019. Globally, significant jumps in jet and kerosene demand are expected in the coming months. But with longer-term air travel seen structurally damaged due to behavioral changes as a result of the pandemic, Platts Analytics does not expect global jet and kerosene demand to return to 2019 levels of 8.1 million b/d before 2026.

2. Will US small/private operators derail capital discipline?

us oil rig count by operator type

What's happening? Rig counts are growing again on the back of higher oil prices as the recovery from COVID-19 continues. However, not all US operators are growing at the same pace. Small/private operators are only 29% below their pre-COVID-19 rig levels while major operators are still 67% below. Most operators have pledged to maintain capital discipline and prioritize debt repayments and returns to shareholders instead of high rig activity, which could result in significant growth in US oil production and lower oil prices.

What's next? If oil prices remain above $60/b WTI, it will likely tempt small/private operators and some large caps to increase activity. However, ConocoPhillips, for one, has just reaffirmed the intention to keep its 2021 expected capital expenditures flat despite higher oil prices. Most operators will provide an update of their 2021 plans as they report first quarter earnings in the next few weeks.

3. EU gas sector focused on storage as summer refill starts from low base…

EU gas storage levels 2018-2021

What's happening? EU gas storage sites are again less than 30% full after a cold spell in early April saw facilities switch back to net withdrawals. The market is becoming increasingly concerned about whether stocks can be refilled over the summer, with European gas prices for Q3 delivery on the rise as a result.

What's next? The cold start to April means re-stocking has had to wait, narrowing the window of opportunity to refill sites. Buyers will likely look to Russia, Norway, and LNG to provide the necessary supply to replenish Europe's storage sites. LNG in particular could be drawn to Europe on the current strong price signals, though Asian buyers will also be looking to secure cargoes which could lead to competition for LNG heating up in the coming months.

4. …while Permian gas market tries to recover from February freeze

Permian gas takeaway capacity to 2025

What's happening? Permian gas production is yet to return to levels seen in January and February before the spell of exceptionally cold weather two months ago that severely hampered US energy systems. The majority of declines are concentrated in the Texas portion of the Permian's Delaware sub-territory, where sample production has fallen from a January average of 1.4 Bcf/d to current levels of 1.2 Bcf/d.

What's next? Based on Platts Analytics data, Permian gas production is on pace for April to be flat with March but average 200 MMcf/d below pre-freeze levels in February and January. While overall production is expected to rise in the coming years, pipeline takeaway capacity serving the prolific shale play is forecast to exceed gas production until 2024. New pipelines started up over the last few years, including Kinder Morgan's Permian Highway Pipeline and Gulf Coast Express, have driven the capacity growth. WhiteWater Midstream has an active open season for up to 2 Bcf of firm gas storage capacity at a Texas facility that serves the Permian.

Reporting and analysis by Robert Perkins, Rene Santos, Stuart Elliott and Harry Weber