Glut of jet fuel on brink of overwhelming global storage
The world is close to running out of space to store all the fuel that jets are no longer burning.
Only 20% of land-based storage for the product remains — about 50 million barrels — while airlines cut flights, according to Vienna-based consultant JBC Energy GmbH.
A collapse in air travel because of the coronavirus pandemic has brought with it a plunge in fuel demand and the threat of a shortage of places to keep unwanted supplies.
The picture will worsen in the coming weeks and months unless oil refineries take drastic action of their own to cut output.
Flight cancellations are destroying demand for the 7 million barrels-a-day market, with some traders speculating consumption could have dropped by as much as 50% of that. Dubai-based Emirates, which runs the world’s biggest airline by international traffic, suspended most passenger flights effective Wednesday.
The product has slumped by more than 60% this year and is trading at around $275 a ton for May supply in northwest Europe. More importantly, December prices for jet fuel are about $350 a ton. If traders can find a means of storing until the end of the year that costs less than the gap between the two months — around $75 a ton — then they can profit from hoarding supplies.
It’s hard to pinpoint exactly when storages would hit tank tops because it’s unclear at this stage precisely how big the hit to aviation demand has been.
Also uncertain is the extent to which refineries have already cut production or how much they can do so if required. Storage sites dedicated to diesel could be repurposed for jet fuel — if there’s time and a workforce to do that.
Energy Aspects Ltd., a consultant, estimates 2.7 million barrels a day of demand will be cut in April and May compared with what it was anticipating. Separately, Facts Global Energy estimates a drop of about 2 million barrels a day, or 30% of current demand. The curtailment could be as large as 50% of typical consumption, a senior executive at one of the world’s biggest commodity traders estimated.
If either figure is right, and if oil refineries fail to respond by dialing back output, then land-based tanks will start to fill within weeks. While storage companies sometimes have unused space, that doesn’t mean it’s available for anyone to use. It can be reserved but not utilized.
“We could see floating storage being used as there is no other option,” said Sri Paravaikkarasu, Asia oil director at FGE. “Clearly onshore tank storage is getting filled at this point.”
Traders and shipbrokers report strong interest in booking tankers to keep fuel cargoes at sea.
There is nevertheless still some space left. In Antwerp, Rotterdam and Amsterdam, the trading hub in northwest Europe, independently held inventories stand at about 3.6 million barrels, well below seasonal norms. They peaked at 7.1 million barrels in 2009. Insights Global, a firm that monitors the stockpiles, says it could take several weeks from the fuel being produced to it reaching storage.
There are also pockets of buying still. More jet fuel is finding its way to Latin America, where consumption has yet to have the same kind of hit seen in other parts of the world.
Signs of weak demand abound, however. The Colonial Pipeline, the largest fuel-link between the Gulf of Mexico and the East Coast, is lowering flows. The conduit carries multiple products including jet fuel, gasoline and diesel. The Philadelphia-based Trainer refinery, owned by a unit of Delta Air Lines, has shifted from jet fuel production to focusing primarily on diesel.
Analysts say there could be reductions in how much fuel refineries are making. That, though, would only add to challenges in the crude oil market, where an increasing number of tankers are already being booked to hoard barrels because of weak near-term demand.