Watching Airplanes - Jet Fuel Production Starts to Recover, But There's a Long Way to Go

The global effort to stop the spread of COVID-19 brought the commercial aviation sector to its knees, and slashed demand for jet fuel to its lowest level in 50 years. That, combined with lower demand for motor gasoline and — to a lesser extent — diesel, forced refineries in the U.S. and elsewhere to substantially reduce their crude oil input and to make major changes in their operations, all with the aim of bringing refined product supply and demand into closer balance. After a horrific spring, U.S. jet fuel production and demand have been rebounding somewhat in recent weeks, but getting back to pre-coronavirus levels may take a long time. Today, we review the flight from hell that the jet fuel market has suffered through so far this year, and how it is affecting refineries.

The RBN blogosphere has been all about COVID-19 the past few months — how could it not be, given the wrenching effects the pandemic has had on crude oil and refined products in particular, but also on natural gas and NGLs. We’ve discussed these impacts in a number of blogs, including Free Fallin’, Things That Matter, and, most recently, Cruel Summer. In Strange Brew back in March, we zeroed in on how the coronavirus-related collapse in crude oil prices was putting the squeeze on U.S. refiners. As we said then, even before COVID-19 spread beyond China, refineries had been incentivized to shift their refined products output toward diesel, which can be used to help make IMO 2020-compliant low-sulfur bunker. When the virus jumped to Western Europe and North America and transportation fuel demand collapsed, the price signals to ramp down their gasoline and jet fuel production became even stronger, pushing refineries toward “max diesel mode.”

We will take this step-by-step, first looking at changes in jet fuel demand over the past several months, then at how refineries reacted to this spring’s demand destruction by, among other things, reducing their overall utilization rates and tweaking their operations to minimize the yield of jet fuel. As shown in the left graph of Figure 1, jet fuel “product supplied” (blue shaded area) — a proxy for U.S. consumption or demand — increased steadily through the second half of the 2010s, though there are predictable seasonal variations in demand: more in the warmer months and less in the colder months. This year was starkly different, as illustrated in the right graph. After starting to fall off in March, jet fuel consumption plummeted in April and May, to an amazing low of 352 Mb/d the week ended May 8 –– May as a whole averaged only 596 Mb/d, the lowest level for that month since 1970! Since its mid-May bottom, product supplied has increased in fits and starts, hitting 1.269 MMb/d the week ended July 10 before settling in between 1.0 MMb/d and 1.1 MMb/d the following two weeks. While that may sound like a decent recovery, keep in mind that in July over the previous five years, jet fuel consumption averaged 1.74 MMb/d.