Europe jet fuel outlook gloomy as growth prospects fail to provide silver lining

LONDON(ICIS)–Outright spot jet-kerosene prices in the European open market have plateaued, as differentials to ICE gasoil struggle to rebound from -$20s/tonne amid sparse trading and a narrowing contango.

Sentiment has been further dampened by the stagnation in upstream crude oil prices – Brent crude has been hovering around the $43 /bbl mark for past two weeks. Slower-than-expected recovery in aviation has also limited buying interest.

Spot cargo trade was thin, while barges recorded a slight increase in the number of deals. Offers continued to outpace bids amid increased inflows, with increased in imports into Europe adding to overwhelmed inventories, resulting in a surge of offers in the spot windows.

Consequently, prices for jet cargoes on a cost, insurance & freight (CIF) northwest Europe (NWE) basis closed on Thursday 23 July at $355.75/tonne, barges on a free on board (FOB) Amsterdam-Rotterdam-Antwerp (ARA) basis were assessed at $362.25/tonne.

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With the arbitrage window said to be open to ship material from the Middle East and parts of Asia into Europe, supply-side woes have intensified.

A broker mentioned that there are still a lot of cargoes to be consumed, with nearly 600,000 tonnes available on the water, and that they were holding ample volumes themselves in tanks around the ports of Amsterdam-Rotterdam-Antwerp (ARA).

As far as demand  is concerned, a major jet fuel buyer highlighted taking relatively small steps, noting only a 10% increase in buying from July to August, which in absolute volumes is insignificantly small.

Consequently, differentials to ICE gasoil have remained largely flat at double-digit lows in the negative zone for both barges and cargoes, with offers outpacing bids. At the same time, the contango in ICE gasoil futures prices continues to narrow, discouraging storage economics.

–PASSENGER TRAFFIC REMAINS LOW
The peak season demand pull is unlikely to be strong, as seen during 2019 and prior years, as both passengers and flight operators remain cautious about the ongoing crisis and speculation over a potential second wave of coronavirus.

The Airport Council International (ACI) Europe reported that passenger traffic across Europe’s airport network stood at -93% in June compared with the same period last year – a marginal improvement on the previous month’s -98%.

Europe’s airports welcomed only 16.8m passengers through their doors in June, compared with 240m in the same month last year. ACI further pointed out that the improvement over the preceding month reflects the progressive lifting of travel restrictions within the EU and Schengen area.

As a result, the European airport network saw daily passenger volumes increasing nearly threefold from 267,000 passengers on 1 June to 757,000 passengers on 30 June, although it is still a far cry from last year’s daily average of 8m in the same month.

FLIGHT ACTIVITY INCREASING
According to Rob Morris, head of consultancy at Cirium, an ICIS sister publication offering travel industry data and analytics, European flight activity increased significantly from 1 July as many airlines reinstated more of their schedule.

“Ryanair are now flying virtually all of their fleet again as are Wizz, albeit the aircraft are generating less available seat kilometres (ASKs) since the utilisation remains lower than at the start of the year” he specified.

Cirium expects that flight activity will continue to increase as other airlines reinstate schedules, citing the example of Jet2.com in the UK, which has started flying again with nearly all of its fleet active.

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Noting the yellow line in the chart below, which shows scheduled capacity change over 2019 on a daily basis (as a rolling seven-day average), Morris pointed towards significant further step-ups expected in early August in Europe.

Morris, however, cautioned that airlines are tactically cancelling flights on relatively short-term windows as they understand demand patterns, so the improvement is likely to be less than reflected in the chart.

Throwing light on the jet fuel demand-side scenario, Michael Lapson, senior analyst at Cirium, shared the flight hour utilisation rates through below-mentioned chart which shows total flight hours for single aisle and twin aisle passenger jets with operators based in Europe.

“At the bottom in April, flight hours were 95% below April 2019. By the end of June this figure had improved to 85% below the same time in 2019,” Lapson said.

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However, he also noted the recovery at the start of July, and as of mid-July flight hours for European operators are about 68% below the same time in 2019.

Front page picture: Planes grounded in Arizona in June; the pandemic brought global aviation to a standstill
Source: MediaPunch/Shutterstock

Focus article by Shruti Salwan