Global jet fuel recovery lags air travel as flights return to pre-pandemic levels

Global air travel measured by flights returned to pre-pandemic levels for the first time in May, according to industry data, but jet fuel demand is still expected to remain below 2019 levels for years to come from efficiency gains and a slower rebound in long-haul travel.

Led by a surge in Chinese mobility as the country reopens its economy, total global commercial flights per day averaged 105,682 in the first two weeks of May, in line with the same month in 2019 for the first time since the pandemic and 20% above where it was this time last year, according to aviation data provider Radarbox.

Jet fuel is expected to be the key driver of global oil demand growth in 2023 for a second consecutive year, with Asia now catching up after lagging behind the rest of the world in 2022.

But the recovery of global air travel—a key driver of oil demand growth this year—doesn't mean jet demand will follow for some time, according to market watchers.

Flights are now on average slightly shorter, as long-haul routes are among the slowest to recover and are often flown by smaller aircraft.

Indeed, measured by scheduled airline seats, data points to the two-speed pace of recovery between domestic and international markets.

Total global commercial airline seat capacity in the week ended May 15 was still 3.1% below where it was in the same week in 2019, and 18% above where it was this time last year, according to aviation data provider OAG.

International seat capacity is now 10.3% below where it was in the same week in 2019, the data shows, while scheduled domestic capacity is 2% higher.

In China, international routes have been much slower to gain ground and stood at only 69% of 2019 levels in April, according to Radarbox data.

Efficiency gains

The average aircraft has also become more fuel efficient as newer aircraft entered the global fleet over the last three years. More older aircraft were also grounded during the pandemic to make way for newer aircraft, which also helped average fleet fuel-efficiency improvements. As newer, more fuel-efficient aircraft replace older planes, normal global fleet efficiency improvements are estimated at around 2%/year, according to the International Air Transport Association.

As a result, analysts at S&P Global Commodity Insights expect global demand for jet fuel and kerosene to recover to an average of 6.95 million b/d in 2023, up 840,000 b/d year on year but still 13% below 2019 levels of 8 million b/d.

Global jet fuel demand is only seen recovering fully to average 2019 levels of around 8 million b/d in 2027, according to S&P Global.

While the continued aviation recovery from the pandemic remains a fundamental theme for jet's demand outlook, there remains an underlying vulnerability to a global economic recession, according to S&P Global analysts.

"There remains a large warehouse of pent-up travel demand, both domestic and international," said Alan Struth, manager for macroeconomics and oil demand at S&P Global. "Airfares are now generally coming off, which is positive for leisure and cost-conscience travelers. Even so, if fuel prices were to resurge or discretionary income and employment weaken significantly, then lower load factors could necessitate reduced schedules and inherently lower fuel consumption."

In terms of prices, jet fuel cracks were among the worst performing during April, declining by $17/b month on month on the US Gulf Coast and between $6-$10/b in Europe and Singapore. The fall marked a sharp normalization from exceptional levels seen at the start of the year, following weather-related disruptions to US product supplies. US jet fuel stocks also surged during March and April and, having been at the second-lowest levels in four years in early March, stocks are now close to the five-year average on a seasonally adjusted basis. according to the International Energy Agency. A similar picture of inventory normalization is evident in the ARA and Middle East markets.

Stockpiles of oil products at the UAE's Port of Fujairah climbed for a second week to a five-month high as of May 15, led by a 35% surge in jet fuel, diesel, and other middle distillates, according to data from the Fujairah Oil Industry Zone.