Only about 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 due to 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 looks sure to 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 roughly 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, will suspend most passenger flights from March 25, it said Sunday.
The product has slumped by more than 60% from its high this year and is trading at around $260 a ton for May supply in northwest Europe. More importantly, perhaps, December prices for jet fuel are at about $340 a ton. In other words, 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 $80 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 currently dedicated to diesel could be re-purposed for jet fuel — if there’s time and a workforce available to do that.
Energy Aspects Ltd., a consultant, estimates that 2.7 million barrels a day of demand will be cut in April and May compared with what it was previously 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. Caltex Australia Ltd. estimates jet fuel demand could drop as much as 80%-90% while announced flight cancellations are in place.