MOSCOW (MRC) - Hopes of a speedy aviation recovery this year have been knocked back by global travel restrictions after the emergence of new coronavirus variants and a slower than expected vaccination rollout, dimming the outlook for jet fuel demand and oil prices, said Reuters.
Jet fuel suffered the biggest demand decline among oil products as aviation activity collapsed last year and is seen by market participants as one of the main factors influencing 2021 oil demand growth, given the lingering uncertainties. Almost 10% of total oil demand in OECD countries was for jet fuel in 2019, dropping to 6% in 2020, International Energy Agency (IEA) data shows. By comparison, gasoline demand remained around 30% in both 2019 and 2020.
Goldman Sachs last month lowered its forecast for first-quarter global oil demand by 700,000 barrels per day (bpd), or 0.7% of total consumption, mainly because of renewed travel restrictions. Analysts and traders had expected a swift recovery for jet fuel consumption on the back of a bounce in leisure travel. However, vaccination programs have been delayed and the skies remain empty, with thousands of planes grounded by the pandemic and many airlines pushed to the verge of bankruptcy.
"For the short-term, there is still no sign of recovery for jet fuel," said a senior jet fuel trader associated with a Japanese refiner. Most traders and analysts now expect the situation to improve only in the second half of the year as vaccine rollouts continue and domestic flights pick up. A recovery in international flights, however, is expected to take longer.
Long-haul flights burn an average of about 35 times more fuel than regional flights, the IEA says, and are responsible for more than a third of total fuel used by the aviation sector. Jet fuel demand will remain at about 5.4 and 5.7 MMbpd in the first and second quarters respectively, research consultancy Energy Aspects projects, far below average global consumption of 7.9 MMbpd in 2019.
In Asia, jet fuel cracks, or margins, have gained in recent weeks but remain at record lows for the time of year. "Refiners with substantial domestic markets will try to run just enough to produce jet fuel to meet domestic demand as the international market is still weak," one senior jet fuel trader said.
In Europe, jet fuel cracks continue to rise, mainly owing to expected heavy refinery maintenance work rather than strong demand. Jet fuel held in independent storage in the Amsterdam-Rotterdam-Antwerp (ARA) hub rose in the week to Thursday to 983,000 tonnes, almost 110% higher than the same period last year.
Global jet fuel floating storage, meanwhile, rose to about 4 million barrels in early February, having dropped from a peak of about 20 million barrels in August 2020 to almost 2.5 MMb last month, according to data intelligence firm Kpler.
The emergence of more contagious variants of the virus has severely affected intercontinental travel, with recovery expected to be arduous, which analysts and traders say could be most painful for Middle East refiners that are heavily reliant on such flights.
With new refining capacity coming online in the region this year, the refiners have no option but to export more jet fuel to already oversupplied markets. In the United States, airline passenger volumes are still down 65% from pre-pandemic levels, said U.S. industry group Airlines for America.
American Airlines said in its fourth-quarter report that it is looking at 2021 as "a year of recovery" but could not predict exactly when passenger demand will return.
As per MRC, a winter storm has brought unusually cold temperatures, snow, and freezing rain to Texas and western Louisiana, forcing a large share of US light olefins production offline. As of the evening of Tuesday, 16 February, IHS Markit had confirmed the shutdown of at least 61% of US ethylene capacity, 59% of US chemical- and polymer-grade propylene (CGP, PGP) capacity, and 22% of US fluid catalytic cracking (FCC) capacity. Many plants that remained online were running at reduced capacity.
Ethylene and propylene are feedstocks for producing polyethylene (PE) and polypropylene (PP).
According to MRC's ScanPlast report, Russia's estimated PE consumption totalled 2,220,640 tonnes in 2020, up by 2% year on year. Only shipments of low density polyethylene (LDPE) and high density polyethylene (HDPE) increased. At the same time, polypropylene (PP) shipments to the Russian market reached 1 240,000 tonnes in 2020 (calculated using the formula: production, minus exports, plus imports, excluding producers' inventories as of 1 January, 2020). Supply of exclusively PP random copolymer increased.
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