Aviation
November 11, 2020

Avfuel State of the Industry


Oil Outlook

Our Thoughts: 

Petroleum markets suffered a setback in September, due to a variety of factors. However, one of the clear signs that the US prices were overvalued was the consistent increase in distillate stocks along with lower than expected demand. As product prices fell, crude prices followed and what resulted was a lower crack spread which led to an approximately 10% dip in refinery utilization rates. We saw distillates trading lower than gasoline which, again, resulted in more pressure on distillates to correct. All of this has had a very positive impact on the supply rebalancing into October, with distillate stocks showing an 11% decrease in inventory levels. Further, we are now seeing demand increases of about 19% on distillates and 13% on jet fuel since early September, which paints an even better picture going forward. Given extremely low refining margins globally, product refining should continue to decrease which will continue to tighten global supply. The demand picture is also looking very promising as mandates start to ease and with a vaccine underway. We continue to believe that prices will significantly improve into next year. 

Historical: 

Brent crude oil spot prices averaged $41 per barrel (b) in September, down $4/b from August as demand growth slows.(1) WTI spot prices averaged $40/b in September, down $2/b from August.(2) The below are estimates based on initial data. 

— Global liquid fuels inventories rose 7.3 million barrels per day (mb/d) in 2Q2020, but drew by 3.1 mb/d in 3Q2020.(1)

— Global consumption averaged 95.3 mb/d in September, down 6.4 mb/d YOY.(1) 

— U.S. production rose to 11.2 mb/d in September.(1) 

— Global oil supply decreased 0.6 mb/d to 91.1 mb/d in September, down 8.7 mb/d YOY.(3) 


Projections: 

Brent spot prices to avg. $42/b in 4Q2020, $41/b in 2020 and $47/b in 2021, with WTI averaging $41/b in 4Q2020, $39/b in 2020 and $45/b in 2021.(1) 

— Goldman Sachs predicts a year-end Brent price of $49/b, rising to $65/b in 3Q2021 on the basis of OECD inventories balancing and increased demand from U.S., China and developed economies.(4) 

— EIA: Expects global consumption to avg. 92.8 mb/d in 2020—down 8.6 mb/d from 2019—and then increase 6.3 mb/d in 2021.(1) 

— EIA: Expects U.S. consumption to avg. 18.2 mb/d for 2020, and 20 mb/d in 2021.(1) 

— EIA: Expects jet fuel consumption to avg. 1.1 mb/d in 4Q2020, down 0.4 mb/d from previous forecasts as data shows recovery of jet fuel consumption, particularly for international flights, is slower than anticipated.(1) 

— IEA: Global oil demand expected to be 91.7 mb/d in 2020, down 8.4 mb/d YOY, and then 97.2 mb/d in 2021.(3) 

— EIA: Expects global liquid fuels inventories to decline by 3 mb/d in 4Q2020 and 0.3 mb/d in 2021 as market balances.(1) 

— EIA: Expects global supply to decline to 94.6 mb/d in 2020 and rise to 98.8 mb/d in 2021.(1) 

— IEA: Expects non-OPEC supply to decline 2.6 mb/d in 2020 and then rise 0.4 mb/d in 2021.(3) 

— EIA: U.S. production to avg. 11.5 mb/d in 2020 and 11.1 mb/d in 2021, down from 12.2 mb/d in 2019.(1) 

Business Aviation Flight Activity 

Historical: 

North American flight activity was down 16.6% YOY in September (see ARGUS table below).(5) 

— All operational categories down with Part 91 being hardest hit at -22.3% YOY.(5) 

— All aircraft categories down with Large Jets being hardest hit at -29.1% YOY.(5) 


European flight activity decreased 11.6% YOY in September with large jets decreasing the most at 26.1%.(6) 

Projection: 

ARGUS forecasts October 2020 will see a 14.8% decrease in overall flight activity YOY.(5) 

Airline Activity 

Historical: 

Industry-wide revenue passenger kilometers (RPKs) declined by 75.3% YOY in August and declined by 63.7% YTD.(7) 

 Domestic U.S. RPKs declined by 69.3% YOY in August and declined by 58.4% YTD.(7) 


Outlook:

IATA predicts 2020 traffic to average a 66% decline YOY.(8) 

Cargo Activity 

Historical: 

Global air cargo tonne kilometers (CTKs) down 12.6% YOY in August, and down 14% YTD.(9) 

— North America total market up 1.7% YOY in August and down by 2.3% YTD.(9) 

— International cargo for North America down 4% YOY in June and down by 8.6% YTD.(9) 


Available cargo tonne kilometers (ACTKs), measuring freight capacity, down 29.4% YOY in August and down 24.8% YTD.(9) 

— North America total market ACTK down 23.3% YOY in August and down 17.2% YTD.(9) 

— North America international cargo ACTK down 28.2% YOY in August and down 22% YTD.(9) 


Outlook:

A number of factors may contribute to a stronger year end, supporting volumes and demand, including: the peak season for air cargo starting in the coming weeks, a robust recovery in certain indicators of economic activity, and anticipated product launches in the tech and health industries.(9) 

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(1) U.S. Energy Information Administration. (October 2020). Short-term energy outlook (STEO). EIA. Retrieved from https://www.eia.gov/outlooks/steo/pdf/steo_full.pdf 

(2) U.S. Energy Information Administration. (October 2020). Petroleum and other liquid fluids. EIA. Retrieved from https://www.eia.gov/dnav/pet/pet_pri_spt_s1_m.htm 

(3) International Energy Agency. (October 2020). Oil market report. IEA. Retrieved from https://www.iea.org/reports/oil-market-report-october-2020 

(4) Goldman Sachs. (25 September 2020). Outlook for air travel - cautious refining, selective airlines and positive 2021 Oil. Goldman Sachs. 

(5) ARGUS. (October 2020). Aircraft activity report (North America). ARGUS. Retrieved from https://blog.argus.aero/hubfs/Aviation%20Market%20Reports/TRAQPak%20Aircraft%20Activity%20Report%2009-2020.pdf 

(6) ARGUS. (October 2020). Aircraft activity report (Europe). ARGUS. Retrieved from https://blog.argus.aero/hubfs/Aviation%20Market%20Reports/TRAQPak%20Europe%20Aircraft%20Activity%20Report%209-20.pdf 

(7) IATA. (September 2020). Air passenger market analysis: August 2020. IATA. Retrieved from https://www.iata.org/en/iata-repository/publications/economic-reports/air-passenger-monthly-analysis---august-2020/ 

(8) IATA. (29 September 2020). Traffic forecast downgrade after dismal summer. IATA. Retrieved from https://www.iata.org/en/pressroom/pr/2020-09-29-02/ 

(9 IATA. (September 2020). Air freight market analysis: August 2020. IATA. Retrieved from https://www.iata.org/en/iata-repository/publications/economic-reports/air-freight-monthly-analysis---august-2020/ 

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