NWE jet margins find support as flight activity rises

Market: Oil products
10/06/20

Northwest European jet fuel margins have turned positive again, for the first time this month, as regional flight activity increases and local refinery output dwindles.

Argus assessed the northwest European jet fuel cargo margin at a $1.17/bl premium to North Sea Dated crude yesterday, the first premium since the end of May. Jet fell to as low as a discount of -$5.80/bl on 13 May, after governments imposed strict travel restrictions because of the Covid-19 pandemic.

Jet fuel demand is now finding support from signs of flight resumptions, albeit at a far lower level than before the pandemic. Turkish Airlines restarted domestic travel on 1 June and will resume international routes today.

Support has also come from lower regional refinery runs and a reduction in jet yields in favour of higher margin products such as diesel. French diesel cargoes have traded at an average $6.67/bl premium to jet since the beginning of May, and are likely to remain at a premium as demand picks up.

The jet fuel cargo forward curve points to a recovery in prices in the fourth quarter, with swaps to Ice gasoil for that period rising to a $4.50/t premium yesterday from a $3/t premium at the close of business last week. But, demand for air travel remains low and will probably stay that way for the rest of the year. The International Air Transport Association (Iata) forecasts air traffic, as measured in revenue passenger kilometre, to fall by 54pc from last year. It expects passenger numbers will halve to 2.25bn, equal to 2006 levels, and capacity to decline by 40pc on the year. In Europe, it sees passenger demand down by 56pc and capacity by 42pc year on year in 2020.

By Florence Schmit

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