Global jet fuel demand is expected to soften as a slowdown in consumer spending affects travel budgets, potentially impacting oil prices. Global jet fuel demand averaged about 7.49 million barrels-per-day (bpd) this year through July, a nearly 500,000-bpd increase over the same period last year. Major U.S. airline operators and travel companies have expressed concerns about slowing consumer spending and its impact on leisure travel. Weaker economic activity could worsen a slowdown in global trade, cutting air freight demand. Changes in consumer behavior and improved technology, such as increased fuel efficiency in newer aircraft, are also affecting jet fuel consumption. Trade wars and border closures have reduced air traffic between countries, impacting jet fuel demand. Analysts expect jet fuel demand to continue growing, but warn of risks to oil demand and price forecasts due to these issues and mileage improvements [ca598fae].
Renewable fuels, such as biodiesel and other renewable diesel fuel oils, are steadily displacing petroleum-derived distillate fuel oil in the United States. This transition is particularly evident on the West Coast, where California has implemented regulations mandating the use of renewable fuels. In February, the volume of petroleum distillates supplied on the West Coast decreased to 370,000 barrels per day (b/d) from 460,000 b/d the previous year, while the volume of renewable fuel oils supplied increased to 170,000 b/d from 90,000 b/d. This policy-driven shift has resulted in a change in the correlation between manufacturing and freight activity and the total supply of petroleum and renewable fuel oils, rather than just petroleum distillates. Overall consumption of petroleum and renewable fuel oils has remained stable over the past year. In February 2024, the volume of petroleum-derived distillate fuel oil supplied to the US domestic market declined to 3.9 million b/d from 4 million b/d in the same month in 2023. However, this decrease was offset by an increase in the supply of biodiesel and other renewable fuel oils to 0.3 million b/d from 0.2 million b/d. The transition from petroleum distillates to renewable fuel oils is also reflected in inventories. US petroleum distillate inventories stood at 118 million barrels at the end of February, which was 18 million barrels below the 10-year seasonal average. However, petroleum distillates were supplemented by an additional 11 million barrels of biodiesel and renewable fuel oil stocks. The relatively small deficit in combined inventories helps explain the recent softening of diesel prices and crack spreads. Hedge funds and other money managers have reduced their combined position in US diesel and European gas oil in eight of the past 11 weeks, selling the equivalent of 52 million barrels since February 13. As a result, the combined position had been reduced to 35 million barrels on April 30, down from 87 million on February 13. Current diesel prices and spreads indicate that supplies are not particularly tight [19a32077] [b49fafdf].
In the UK, the cost of delivered-in diesel remained stable in May, with a marginal decline from approximately 112ppl to 111ppl, according to Portland's national average price. Central banks' monetary policy analysis dominated discussions around energy markets, with investors seeking indications of demand for the rest of 2024. Despite geopolitical developments and supply concerns, growing sentiment suggests that higher interest rates will be in place for longer than previously anticipated, which could slow the global economy's growth to control inflation. On the demand side, China's announcement of a US$138 billion ultra-long sovereign bond sale to boost its economy has improved the outlook. Although China's economic recovery as the world's largest crude oil importer has been disappointing post-pandemic, data released in May showed a 5.5% increase in crude imports year-on-year in April, leading to higher prices. The pound had a positive month against the US dollar, starting at US$1.249 and consistently gaining to finish May trading at US$1.273, marking the first monthly rise since January. The cost of blending biodiesel to UK B7 specification increased from 5ppl at the beginning of the month to 6ppl. While wholesale diesel prices decreased slightly during the month, FAME-10 prices increased, widening the differential and raising the cost of Renewable Transport Fuel Obligation (RTFO) compliance. Additionally, wholesale renewable diesel (HVO) prices in the UK fell from approximately 121ppl to 109ppl in May. Furthermore, the price of Renewable Transport Fuel Certificates (RTFCs) rose to 20ppl, increasing the benefit received by HVO consumers assuming that 100% of the RTFC benefit is passed on to the end-user [11725f5e].
US refiners are preparing for record summer travel as jet fuel demand surges. According to government data, US refiners have churned out jet fuel at the fastest pace since COVID, reaching 1.9 million barrels per day (bpd), an 8% increase compared to the previous year. Jet fuel consumption is rising above pre-pandemic levels for the first time, with a record 5.74 million people estimated to be flying around the July 4 holiday. US refiners have built over 2 million barrels of jet fuel in stockpiles since the beginning of the year, pushing inventories to 41.95 million barrels. Despite higher travel forecasts, domestic airfares around the July 4 holiday are down 2% from last year. Boosting jet fuel production and raising output will be important for US refiners to meet the surge in demand expected over the holidays [fc372fa9].
The US refinery capacity is expected to reach near-record levels in 2023, according to the US Energy Information Administration (EIA). The EIA predicts that the US will have a total refinery capacity of nearly 20 million barrels per day by 2023, which is close to the record high of 20.6 million barrels per day set in 2020. This increase in capacity is driven by investments in new refining projects and expansions of existing facilities. The US is one of the largest producers and consumers of petroleum products in the world, and the expansion of refinery capacity will help meet the growing demand for these products [3a739459].
Annual jet fuel consumption in the United States grew in 2023 for the third year in a row but remained below the pre-pandemic peak in 2019. U.S. jet fuel consumption averaged 1.65 million barrels per day (b/d) in 2023, 5% below the pre-pandemic high in 2019. So far this year, airlines have surpassed 2019 levels and are consistently higher than in 2023. In 2020, less jet fuel was consumed in the United States than in any year since 1985 due to reductions in air travel caused by the outbreak of COVID-19. With labor and fuel price constraints largely resolved in 2023, jet fuel consumption increased more slowly than during the two previous years and remained below pre-pandemic levels because of less activity by foreign-based commercial carriers, declining freight activity, and improving fuel efficiency in the commercial fleet. Commercial aviation, which includes passenger airlines and air freight companies, typically accounts for around 85% of jet fuel consumed in the United States. General aviation accounts for around 8% of jet fuel consumption, and U.S. military and U.S. government consumers account for around 7% of jet fuel consumption. Among the three, commercial jet fuel consumption was the most affected by pandemic-era travel reductions, falling 42% from 2019 to 2020. In 2023, commercial carriers consumed 8% less fuel than in 2019. General aviation users only consumed 11% less fuel in 2020 than in 2019. Military and government users were much less affected by travel restrictions; their jet fuel use only declined 7% from 2019 to 2020. U.S. activity by foreign-based commercial passenger airlines continued to lag pre-pandemic activity in 2023 and was the major reason for less U.S. jet fuel consumption. Declining air freight activity was another factor for slower growth in U.S. jet fuel consumption in 2023. The increasing fuel efficiency of newer airplanes has also limited U.S. jet fuel consumption. The average fuel economy of U.S. commercial carriers in terms of available seat-miles per gallon increased to 65.5 seat-miles per gallon in 2023 compared with 64.9 seat-miles per gallon in 2019 [5eb55529].