Waning macroeconomic indicators, softening crude cap European aviation rebound

LONDON (ICIS)–The European jet kerosene spot market remained pressurised by weakening fundamentals as the return of travel restrictions in Asia and a resurgence of coronavirus cases in the US pushed inventories to historical highs, denting macroeconomic indicators despite regional dynamics supporting aviation recovery.

A fall in Brent crude ICE futures has exacerbated the impact on jet outright values, which have weakened by 6-7% since the close of last month.

Jet-kerosene CIF (cost, insurance & freight) NWE (northwest Europe) prices were assessed at $602/tonne on Tuesday 11 August,  $38.25/tonne lower than $640.25/tonne at the end of July.

The resurgence of coronavirus cases in China, which is also dealing with the highly contagious Delta variant, has dented local demand with seat capacity dwindling for the first time post the initial pandemic recovery.

Authorities in the Chinese capital have tightened travel restrictions to Beijing, banning visitors from coronavirus hotspots as they try to keep the highly transmissible Delta variant at bay, according to a local publication.

Meanwhile, rising jet fuel supplies in the US amid increasing coronavirus have dented hopes of a summer uptick.

Despite recording a drop of 4% in the week to 30 July, inventory levels for aviation fuel remain at long-term high according to the US Energy Information Administration (EIA).

Losses in upstream crude oil prices have been largely due to the spread of the Delta variant in China, as well as warnings from the United Nations that action on climate change would need to be much tougher, pushing Brent values below the $70/bbl mark.

At the same time, physical trading in the open market failed to pick up pace with some cargoes still looking to be placed, signalling lack of buying interest.

Regionally, buyers have been cautious in committing to high volumes, as reflected by lack of trades in the barges and cargoes during the ongoing peak season, with fundamentals to face pressure as the market approaches the end of the peak season in mid-September.

Softening Brent crude has impacted refinery margins, with the prompt-month crack spread strengthening to $6.50/bbl on Monday, 9 August before retreating to $6.10/bbl the following day.

Jet differentials over ICE gasoil futures contract have stayed firm in the high twenties, with a lack of trades stalling any major gains.

While some European airlines are eyeing aviation fuel consumption rates to firm up to 70% by the end of this year, firming further by 80-85% by early next year, evolution of the coronavirus pandemic is likely to deter the progression.

Eurocontrol’s medium-term outlook suggests around 50% of 2019 traffic for all of 2021, while by the end of next year, traffic will only be recovered to 72% of 2019 levels and will only get back to close to pre-pandemic levels by 2025, keeping aviation fuel demand recovery rather slow.

Thumbnail picture: Planes line up at Amsterdam’s Schiphol airport. Source: Artur Widak/NurPhoto/Shutterstock