Slow return of jet fuel demand weighing on Gulf Coast refiners
With global air travel not expected to recover from pandemic losses for several years, the collapse of jet fuel demand is expected to continue to weigh on Gulf Coast refiners.
While demand for gasoline and diesel fuel has returned to pre-pandemic levels, jet fuel consumption continues to lag.
U.S. jet fuel demand, which before the pandemic was 1.5 million barrels per day, is forecast to reach 1.47 million barrels a day during the third quarter of 2021, up from 1.13 million in the first quarter and more than 50 percent higher than a year earlier, according to the Energy Information Administration. It had sunk to 576,000 barrels per day in May 2020, the EIA said.
Globally, jet fuel demand is expected to reach 5.8 million barrels per day in 2021, about 30 percent more than during 2020, the EIA said. Before the pandemic, some 7.5 million barrels of jet fuel were consumed daily around the world, according to Bloomberg.
Airlines for America, a trade group that lobbies for North American air carriers, estimates that the number of passengers won’t return to pre-pandemic levels until 2023. The International Air Transport Association, a trade group representing the world’s airlines, says international travel won’t return to normal until 2024.
Compared to gasoline consumption, now at about 10 million barrels a day, jet fuel is a minor refinery product. But it is key to their profits, said Richard Swann, global director of clean refined products at S&P Global Platts.
“Jet fuel is not as big as gas, but it’s still a chunk of what comes out of the refinery, and if it is weak, it is going to give you a problem because you’re still going to have to produce those molecules,” he said.
Airlines have begun adding flights back to their schedules.
But the number of flights to some markets is less than in 2019.
“Until we get a more robust global recovery of jet, specifically in business travel and international travel, it will be difficult for marginal refining economics to really be as high as it can possibly be,” said Barclays analyst Theresa Chen.
United Airlines said it is operating 80 percent of its domestic network, compared with July 2019, including 460 daily departures from George Bush Intercontinental, the most since the onset of the pandemic. United said it expects business travel to increase with the start of the school year as more people return to offices.
International travel, however, isn’t expected to rebound as quickly as domestic U.S. travel because of lower vaccination rates in many parts of the globe. And business travel continues to stagnate as corporations use options such as virtual meetings.
“Business travel is still off some, as you would say. And then when you think about international air travel, that’s still off,” said Greg Garland, chairman and CEO of Houston refiner Phillips 66, during a JPMorgan investors conference last month.
Phillips 66 lost $654 million in the first quarter of 2021, compared with a loss of $2.5 billion during the same period in 2020. Phillips 66 said it benefited from growing demand for gasoline and diesel.
Despite the ongoing troubles with jet fuel demand, there is one bright spot: Consumers moved much of their shopping online, raising the amount of long-distance package hauling and a greater need for fuel for shipping.
“Packages flying back and forth — that’s here to stay,” Chen said.