Last week’s wild price swings have given way to calmer sessions. Brent and WTI were little changed for a second day running on Tuesday. Pricing pressures have been temporarily put on hold amid the ongoing tug-of-war between Delta variant concerns and expectations of crude deficits. Yet while the energy complex settles into a holding pattern, it’s a different story on the global stock market front.

Leading US equity gauges pulled back from record highs yesterday as caution returned to the fore. Concerns about China’s regulatory clampdown on various sectors within its economy sent shivers through the markets. What’s more, Fed caution also kept buyers at bay. The US Federal Reserve’s latest meeting got underway yesterday and investors are bracing for further clues on when US stimulus might start winding down.

All the while, the IMF released its updated global growth forecasts to little fanfare. The Washington-based lender maintained its 6% world GDP growth forecasts for 2021. Yet this solid economic outlook masks what are increasingly diverging fortunes between wealthy countries and developing economies. OECD nations such as the US were given a forecast bump and the expense of non-OECD countries largely because of better access to Covid-19 vaccines.

Returning to oil, the current bout of range-bound trading could be upended by today’s EIA report concerning US oil stocks. This price catalyst may inject some much-needed momentum into proceedings, especially after the API set a bullish tone.  Overnight, the industry group reported draws across the board. US crude stocks fell by a forecast-beating 4.7 million bbls last week while gasoline inventories dropped by a hefty 6.2 million bbls. Even distillate fuels stockpiles trended lower with a decline of 1.9 million bbls.

Once a laggard, always a laggard

Demand for US jet fuel has rebounded from its 2020 lows as the number of Americans getting on planes hits a pandemic-era high. More than 2 million people a day a transiting through US airports, according to recent TSA data. This is almost three times the number that were traveling around this time last year and about 80% of the number that travelled in the summer of 2019.  But while passenger numbers are recovering, they are flying shorter distances, which on average use around 35 times less fuel than long-haul flights, the IEA estimates. What’s more, one crucial crowd is still largely missing: business travellers.

Small wonder, then, why US jet fuel demand is the laggard of the oil market. While America’s consumption of gasoline and diesel fuel has returned to pre-pandemic levels, jet fuel demand continues to lag. For the week ending July 16, the four-week average demand for gasoline was 99% of the comparable period in 2019 and distillate was 101%. The same figure for jet fuel was 76%.

And there are fresh headwinds on the horizon for US jet fuel demand. Daily coronavirus infections are on the rise again in the US following an explosion of the Delta variant. Covid cases have nearly tripped over the last two weeks, although they are still just a fraction of the January peak. Even so, the US is “going in the wrong direction”, according to the nation’s top infectious diseases expert. So far, airlines said that a resurgence in Covid-19 cases and the delta variant has not translated to fewer bookings. However, this optimism could soon be dashed by a sustained uptick in cases.

Meanwhile, in a further blow, on Monday the White House said that it will not lift any existing travel restrictions “at this point”. This is due to concerns over the highly transmissible Covid-19 Delta variant and the rising number of US coronavirus cases. Crucially, it means that that the long-running travel restrictions that have barred much of the world’s population from the US will not be lifted in short-term. Ongoing international travel restrictions, coupled with concerns about rising Covid-19 cases and a dearth of business travellers are casting a negative shadow on the outlook for US jet fuel demand.  Consequently, most market observers forecast that a return to pre-pandemic levels is unlikely at least until 2023.

Needless to say, this slow recovery does not bode well for domestic stock levels and therefore refining margins. As things stand, the US is swimming in jet fuel. While US crude, gasoline and distillate fuel inventories are below the five-year average for this time of the year, jet fuel stocks are at their highest seasonal level in a decade. Part of the problem is that US refiners are churning out gasoline to meet resurgent road fuel demand. However, this indirectly leads to more jet fuel output. At this rate, sky-high US jet fuel stocks are unlikely to be drained for the foreseeable future. When it comes to the US jet fuel complex, it’s a case of once a laggard always a laggard.