Jet fuel takes hit as Trump unveils US travel ban

The travel ban announced by US President Donald Trump today is likely to have an immediate impact on jet fuel demand and prices across Europe and the US.

Mark Williams, principal analyst, refining, at Wood Mackenzie, said: “In our view, jet fuel demand could drop between 200,000-250,000 barrels per day (b/d), split between sales in the US and European markets over the ban’s 30-day period.” 

He added: “The coronavirus outbreak had already placed significant downward pressure on global jet fuel demand.

“Although operators were cancelling flights, airlines were still needing to fly a percentage of their flights to retain allotted time slots. European and US regulations require airlines to utilise slots 80% of the time or lose them to competitors. The European Commission and the Federal Aviation Administration suspended this rule from March 11, which adds further downside risk to jet demand in the short-term.

“Combined with the oil price crash and lower demand, jet fuel prices for consumers and airlines will drop, but in our view this will not incentivise additional travel as government restrictions prevent discretionary travel. It’s a downside to already weak demand and crack spreads.”

North-west Europe jet fuel crack spreads have been under increasing pressure already, despite high refinery maintenance in the Middle East Gulf, which has limited imports from Europe’s most important supplier.

Williams added: “However, scheduled imports through March are significantly higher month-on-month as favourable storage economics and a contango structure in jet prices incentivised imports. Some of the imported jet fuel may be blended into the diesel pool as jet prices remain at a discount to diesel.

“Refiners are also likely to lower jet yields and blend more jet fuel into the distillate pool to accommodate lower jet demand, adding further pressure to already weak distillate cracks.”

He said the biggest impact will be on Middle East supplies, but with a strong contango structure imports are likely to remain strong to rebuild stock levels.

“In our view, average jet fuel imports into the US total 170,000 b/d, of which about 80% originates in Asia – this represents only 8% of total demand.” Williams said.

“We would expect to see limited impact on US crude runs because of this announcement, as refiners will be able to shift yields over the coming months to mitigate the lower than forecast demand.”