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American Jet Fuel Finally Sees Covid Rebound

Last week, crude oil futures finished the week higher on indications of stronger U.S. demand and a rising perception of risk from a wider Middle East conflict that could endanger oil flows from the region. Attacks by Houthi rebels continued on the Red Sea while drones from Ukraine struck four oil refineries and other military targets in Russia. Overall EIA data suggests a tightening U.S. oil market, "over the near term, we think China's oil demand growth disappointing market expectations is the key downside risk to consider," Commonwealth Bank of Australia analyst Vivek Dhar said.

Another corner of oil markets continues to shine: the aviation industry. Last week, U.S. refiners produced 1.9 million barrels per day (bpd) of jet fuel, good for 8% Y/Y growth and the highest weekly total since January 2020, the latest Energy Information Administration (EIA) weekly data has revealed. Airlines for America (A4A) has forecast that U.S. airlines will carry 271 million passengers across the globe this summer, a 6.3% increase from last summer and a new record that surpasses the previous one of 255 million customers set in summer 2023.

According to A4A--the industry trade organization for leading U.S. airlines--U.S. passenger carriers will offer more than 26,000 scheduled flights per day in a bid to accommodate this heightened demand--up nearly 1,400 from last summer. Meanwhile, motorist group AAA has predicted that a record 5.74 million people will fly to their destinations around the July 4 holiday.

U.S. jet fuel demand is already setting new records, with the four-week average jet fuel demand of 1.75 million bpd over the last week the highest for this time of the year since 2019, according to U.S. Energy Information Administration data. Thankfully, U.S. refiners are up to the task, with Matias Togni, founder at energy research firm Galpon Shipping & Trading, telling Reuters that higher refinery output will match the anticipated surge in demand over the holidays.

Refiners have added over 2 million barrels of jet fuel to stockpiles in the current year, bringing inventories to 41.95 million barrels by June 14. That marks a 2% increase compared to last year and in-line with the past five years' seasonal average. According to AAA, domestic airfares around the July 4 holiday are 2% lower than last year, even as the flight tracker Airportia showed total U.S. flights are up 1% from last year. Airportia tracked 30,264 U.S. flights on Thursday last week, a 7.2% Y/Y increase.

According to the EIA, jet fuel is the fourth-most-used petroleum product in the United States. In 2022, jet fuel consumption averaged 1.56 million b/d (65 million gallons per day), accounting for about 8% of total petroleum consumption.

Global Aviation Rebound

The aviation industry rebound is not just happening in the United States. According to Geneva-based International Air Transport Association (IATA), the vast majority of metrics point to a strong rebound in global passenger air travel. Last year, global revenue passenger kilometers or RPK rose 36.9% Y/Y with full-year traffic hitting 94.1% of pre-pandemic (2019) levels. Virtually all international passenger markets posted double-digit traffic growth with Asia-Pacific airlines posting a world-leading 126.1% increase.

This trend is expected to continue in the current year and over the long-term. In its latest forecast, IATA sees RPKs growth clocking in at 11.6% year on year. The long-term 20-year growth trend is expected to see passenger demand grow 3.8% annually for the 2023-2043 period. Net profits are expected to reach $30.5 billion in 2024 (3.1% net profit margin), an improvement on 2023 net profits at $27.4 billion (3.0% net profit margin). This also marks an improvement on the $25.7 billion (2.7% net profit margin) forecast for 2024 profits that IATA released in December 2023.

In contrast, cargo revenues are expected to fall to $120 billion in 2024 from $138 billion in 2023. Both figures are sharply lower after a record $210 billion posted in 2021, but above 2019 revenues, which were $101 billion. Despite strength on the demand side, cargo yields are expected to fall 17.5% in 2024 while remaining slightly above 2019 levels. IATA has pointed out that in general, air cargo is currently going through a period of correction following an exceptional year in 2021. Thus, key metrics including yields, capacity growth, the belly-dedicated freighter split are all moving from the extraordinary mid-pandemic situation towards a continuation of pre-pandemic trends and levels.

By Alex Kimani for