Bloated supplies keep European jet fuel margins stuck on runway

A worker fills an Airbus jet with aviation fuel at Fuhlsbuettel airport in Hamburg
A worker fills an Airbus jet with aviation fuel at Fuhlsbuettel airport in Hamburg, March 14, 2012. REUTERS/Fabian Bimmer/File Photo

LONDON, March 22 (Reuters) - The European jet fuel market is coming under pressure from oversupply even as demand from the aviation industry continues its post-COVID recovery, market sources told Reuters.

European profit margins for producing jet fuel are averaging about $27 a barrel this month, the lowest since February last year, according to Reuters assessments.

Margins averaged $30.70 a barrel in February and $47 in January.

"Despite a recovery in passenger numbers we seem to be well supplied, with jet still in contango on the front," one European trader said.

Contango is a market structure in which prices for future delivery are trading at a premium to the prompt price. It usually indicates oversupply and encourages traders to store oil to sell it in the future.

On Tuesday the April northwest European jet fuel cargo swap was trading at about $20 a tonne below the May swap, traders said.

Another trading source said that, after a slump in diesel margins early this year, refiners in Europe adjusted runs to produce less of the motor fuel and more jet fuel owing to stronger economics for the aviation fuel.

This move, he added, contributed to a rise in jet fuel supplies.

Jet fuel imports into Europe have also been strong.

In February about 503,000 barrels per day (bpd) made their way to the continent, the highest since December's 522,000 bpd and down from a record 590,000 bpd in October, data from oil analytics firm Vortexa showed. March imports are currently standing at about 330,000 bpd.

Reuters Graphics

The latest Euroilstock data showed that European middle distillates production, which includes diesel and jet fuel, was up 7.4% year on year in February.

"Too much jet around," a third trading source said, adding that storage space was limited.

Supplies are expected to tighten, however, as peak summer travel demand approaches and drives up demand.

The International Energy Agency expects jet fuel demand to account for 57% of its total forecast for global oil demand growth of about 2 million bpd this year, its latest monthly report said.

"During 2022 jet/kerosene steadily gained ground and we expect that this year's usage should reach 92% of the 2019 mark," the agency said.

Prolonged refinery outages in France, largely because of strike action, could also tighten the market, traders said.

Reporting by Ahmad Ghaddar and Rowena Edwards Editing by David Goodman

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