Richard Rawlinson

Jet Fuel - The skies are clear but the outlook is cloudy

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The Oil market and trading focus this week has been dominated by OPEC+ and traders trying to anticipate just how much production will be cut. The current levels of imbalance between Supply and Demand are unprecedented, with the world coming to a standstill over Covid-19 and amidst an all out price war with the Saudis deciding to 'pump at will' after the collapse of the last OPEC+ meeting. Futures V Physical price dislocation before this meeting showed just how far from equilibrium the oil markets were; and still are. 
There are not many economic examples of where supply is reduced by 10million X, in this case barrels per day and the price actually falls. This demonstrates not just how flush we are with oil on the supply side, fixed and floating, but more so just how much global demand has been decimated.
▪︎India is using 70% less than normal
▪︎Gasoline demand had the lowest weekly EIA stats since 1980 
The picture doesnt look much better for Q2 with demand reductions estimated to be around 25-30m barrels per day. Something has to give; something already has. Jet.
Crude and WTI are like the strikers in football; they get most of the glory during good times and are highlighted as underperforming during bad times. What tells the real story is how the manager (refineries) react and the underlying crack markets and cash differentials.
The airline industry has been hit particularly hard and so has the cash discounts for Jet fuel; plummeting to decade lows. The ultra steep contango in the prompt spread continued to widen as borders remain closed and the skies remain quiet with Global Air travel predicted to drop by 70% over Q2, according to the International Air Transport Association (IATA)

Jet-Sin-Dif was pricing $3.22bbl on Thursday. These levels havent been seen since the crash of 2008 and the speed of which this 2020 curve is changing means traders are having to be ultra carefull. With $2.3trillion more put on the table from the US Fed this week the money may be there - supply - but once again it's the demand that is causing these trading kinks with:

▪︎April/May time spreads having gone from $3.50 to -$2.80bbl since Wednesday

▪︎Jet fuel cracks trading minus $3.35 only last week.

With Easy Jet deferring the delivery of 24 new Airbus planes, with British Airways cut to junk status and with Jet demand ranges predicted to fall anywhere from 300,000 barrels per day next year by some and that it will be back to normal come 2021 by others, the picture for traders is still unclear; unlike the pollution free skies. 
Edited by Richard Rawlinson
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