Lack of Flying Leads To Jet-A Oversupply

As airlines continue to cancel flights as a result of the COVID-19 pandemic, demand for Jet-A fuel has dropped to the lowest level since the aftermath of the 9/11 terror attacks in 2001. The Airports Council International predicts that close to 38.1 percent of global passenger air traffic will be lost in 2020, equating to 3.6 billion passengers. That curtailing has led to an oversupply of Jet-A.

“Airline fuel consumption prior to COVID-19 in the U.S. was running about 1.7 million barrels per day [b/d],” said Ben Brockwell, cofounder and executive director of strategic content at the market analyst Oil Price Information Service. Usage is now down to 1.3 million b/d, he said, adding that "even that number is [artificially] high because it reflects barrels being produced and going into storage and not into aircraft.”

“Jet fuel demand loss on a percentage basis now exceeds gasoline and diesel, a stark change from the prior three years, when jet fuel led all transportation fuels in annual percentage growth,” added C.R. Sincock, executive vice president for fuel provider Avfuel.

According to the U.S. Department of Energy, jet fuel consumption in March was down 16.4 percent from the previous month, and year-over-year consumption has declined nearly 8 percent. As the epidemic continues to grow, those numbers are expected to rise even further.

“IHS Markit, our parent company, estimates that U.S. jet fuel demand in April will fall to 607,000 b/d compared with 1.75 million b/d the same time last year,” Brockwell told BJT. “That is a huge drop, and the country is running out of space to store fuel.” Some assessments say that less than 20 percent of the land-based fuel storage space remains empty.

"Producers have to discount the fuel in order to incentivize someone to take delivery today on the spot market and store it, as opposed to waiting to buy it when demand picks up,” said Sincock. When asked whether this situation has resulted in a glut of aviation fuel, he replied, “To some degree, yes, because the supply chain can’t be turned off and on overnight. You have production ramped up for a certain level of usage, and then when demand is cut in such a short amount of time, of course, there will be an oversupply.”

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For those still flying, the situation has resulted in a bit of a silver lining at the fuel pump. “Airline fuel demand is down and supply is up,” said Brockwell, “a basic equation for prices being as cheap as they have been in two decades.”

“We should see significantly lower fuel prices at the pump,” agreed Sincock. He referred to the negotiations with Saudi Arabia and Russia to decrease crude oil output. “But even if that happens, we don’t expect fuel prices to be at the levels we saw at the beginning of the year anytime soon.” With the demand reduction in the marketplace between flying and driving being in excess of two-thirds of the production coming out of refineries, Avfuel expects prices to remain depressed.

For the FBO industry, while cargo and humanitarian flights continue, aside from an early spate of aircraft and personnel repositioning back to their home bases, there has been a corresponding drop in fuel sales, according to Avfuel, based on feedback from its more than 650 network members.

“We are so proud of this industry and how many FBOs and flight operators have remained open to service as part of the critical infrastructure helping the fight against COVID-19,” said Joel Hirst, the Ann Arbor, Michigan–based company’s vice president of sales.

To support them, the fuel provider has waived the initial subscription fee for its FAA-approved Part 139 Line Fuel Safety and Supervisory courses through the end of June, giving all network customers free access to all of the Avfuel Training System content for a year upon new signup.

Avfuel has been in constant communication with its network, gathering the latest resources on health and safety, the CARES Act, training, operational guides, marketing, and other topics on its website. Hirst said the Avplan trip support division is available 24/7 to answer customer questions and provide COVID-19 updates and trip feasibility advice at no cost, and he also said Avfuel will be altering the tier requirements for its Avtrip customer loyalty program to account for the current economic environment.