The prolonged stop of flights risks being a death sentence for many plants. Especially in Europe, where the sector in crisis for years may run out of time
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The coronavirus has returned to scare the markets, including the oil one: new lockdowns would give the coup de grace to the economy and energy consumption, so the barrel prices – in the wake of the stock exchanges – sank by 5% in the session on Monday 21 , bringing it to around $ 41 for Brent and under $ 40 for WTI. To complicate the situation there is also the imminent (albeit partial) resumption of supplies of crude from Libya, after the NOC revoked the state of force majeure in some ports and infrastructures in the country over the weekend. But it is not only the developments of the last few hours that weigh on the market.
The recovery dreamed of by OPEC has jammed
The recovery in which OPEC was hoping seems to have stalled and – regardless of the alarm for new infections from Covid19 – signs of weakness on the demand front had already been showing for a few weeks. Both OPEC, the International Energy Agency and the US government this month revised their estimates for 2020 downwards in the latest monthly bulletin. While global gasoline consumption recovered quite well over the summer, the same cannot be said for automotive diesel, a fairly accurate gauge of the health of the economy. Above all, it has become increasingly evident as the air transport crisis risks causing such a profound and prolonged impact as to represent a mortal threat for many refineries, especially in Europe, where the sector – in crisis for years – may not have sufficient time and resources for the conversion necessary for the energy transition.
A segment that is worth 8% of the fuel market
Aircraft fuels are only apparently a niche market: in 2019 they accounted for around 8% of global oil consumption (around 8 million barrels per day, according to BP data), but they were one of the most profitable segments and higher growth, with an increase in volumes of 2.7% per year in the last decade, well above that of other refined products. Today the question it’s more than that halved, the selling price has collapsed and there are no signs of an imminent recovery. But what is worse is the effect on refining margins, which fell for all spirits, which usually drive profits: in Northern Europe from $ 16 / barrel at the beginning of the year, it dropped to around $ 3.
Most of the aircraft, especially those destined for long-haul routes, continue to remain on the ground and IATA fears that it will not return to normal before 2024. In the meantime, the stocks of spirits (largely jet fuel) continue to accumulate: in the US – where passengers in flight have decreased by 70% – they are at their seasonal highs at least since 1991 (179.3 mb, + 31.2% compared to 12 months ago). There is so much jet fuel around the world that you literally don’t know where to put it anymore. A few weeks ago the phenomenon of floating storage: fuel kept on oil tankers waiting for better times (according to Vortexa they are anchored mainly in Europe). The abundance and low price is also pushing to mix kerosene for aircraft with fuel for ships. In Russia, according to Reuters, it is also diluted in automotive diesel, creating dangerous mix, because the product is more flammable than others. The fact is that refineries cannot produce only one fuel at a time and there are limits to the possibility of reshaping the volumes of each. In many cases the only way out to avoid losses is to slow down the business, if not stop it altogether.
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