US jet fuel demand is fully back to pre-Covid levels

According to commodity analysts at Standard Chartered, oil markets are going through a period of major dislocations where oil price movements are largely unlinked to fundamental changes, with market behavior over the past week suggesting this dislocation will continue.

Under normal circumstances, the news flow over the past week would have been broadly bullish for oil markets: stimulus developments in China were positive for China-sensitive markets (but not for oil), while the Middle East became significantly more complex even more unpredictable following the escalation of violence in Lebanon.

In addition, StanChart minimized a recent report by the Financial Times that Saudi Arabia was poised to ditch its unofficial $100-a-barrel price target for crude oil as it prepares to increase output, effectively signaling it is resigned to a prolonged period of lower oil prices.

According to StanChart, Saudi Arabia’s production increase of 84 thousand barrels per day (kb/d) every month from December 2024 does not necessarily mean that the Kingdom has changed its policy and is targeting market share, pointing out that Saudi Arabia it didn’t have a price. target for many years. In StanChart’s view, the main underlying story is that Saudi Arabia is sending a warning that it will accelerate the removal of voluntary cuts if all partners involved fail to meet their commitments.

Related: Oil surges 4% amid talk of Israeli attack on Iranian oil and gas

StanChart also downplayed the imminent return of Libyan oil to the markets, saying that once returned, Libyan exports are unlikely to be held constant for long given that some of the key status quo arrangements in the Tripoli power relationship /Benghazi seems to have broken. hopelessly down. Moreover, analysts pointed out that rather than adding to the glut, a return of Libyan output to July levels would simply reduce the shortfall expected in October.

Another bullish catalyst: Air travel has now fully recovered from the collapse during the pandemic.

Request/Offer revisions

right revised data from the Energy Information Administration (EIA), US jet fuel demand averaged 1.852 million barrels per day (mb/d), good for 4.5% y/y growth. Post-Covid

demand recovery is now almost complete, with July fuel demand coming in 5k barrels per day (kb/d) above the July 2019 peak and just 6 kb/d (0.3%) below the August 2018 all-time high. StanChart notes that initial estimates provided by the EIA implied a 1.9% Y/Y decline, which triggered a big selloff in oil prices. The revised EIA data is consistent with other indicators, with the Transportation Security Administration (TSA) reporting a 5.2% y/y increase in passenger numbers in July, including an all-time high of 3.01 million on July 7.

Airlines for America (A4A) forecast that US airlines will carry 271 million passengers around the globe this summer, a 6.3 percent increase from last summer and a new record that tops the previous record of 255 million customers set for the summer of 2023. According to A4A — the industry trade organization for the top U.S. airlines — U.S. passenger carriers will offer more than 26,000 scheduled flights per day in an attempt to meet this increased demand — with nearly 1,400 up from last summer.

The EIA also made upward revisions to demand for gasoline and distillates (diesel); Gasoline demand rose 3.5% y/y to 9.297 mb/d, while distillate demand rose 3.1% y/y to 3.693 mb/d.

In another indicator that oil markets may be tighter than oil prices are implying, the EIA revised U.S. crude oil production up in July by about 0.1 mb/d. US crude oil production in July reached 13.205 mb/d, 25 kb/d lower m/m and 103 kb/d lower than the all-time high of December 2023. Indeed, US crude oil production remained largely unchanged over the past 12 months. StanChart notes that the latest EIA report is at odds with the seemingly endless media narrative about weakening US transportation fuel demand along with rising US crude supply. In other words, real-world data continues to point to robust oil demand and erratic US supply.

By Alex Kimani for Oilprice.com

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