Global flight activity passed pre-pandemic levels for the first time in four years last week, but jet fuel demand growth has not kept apace as newer fleets of aircrafts become more fuel efficient and carry more passengers.
Aviation fuel, a product refined from crude oil, has been the single biggest contributor to oil’s post-pandemic bonanza, accounting for almost half the increase in total oil demand, according to the International Energy Agency (IEA).
That makes jet fuel’s pace of growth critical in forecasting how long it will take for fossil fuel demand to peak – the biggest question energy market participants are grappling with.
Global consumption of jet fuel and kerosene fell to 4.7 million barrels per day (bpd) in 2020, as activity froze during pandemic lockdowns, down from a peak of 7.9 million bpd the prior year, according to the IEA.
As the lockdowns ended and travel recovered, demand for the fuels jumped by more than a million bpd in 2022 and 2023, IEA data showed.
But global demand growth is expected to be much smaller this year, at just 230,000 bpd for a total of 7.4 million, according to IEA forecasts.
“This is despite air traffic recovering to pre-pandemic levels, with this gap arising because of very significant gains in overall aircraft fleet efficiency over the last five years,” IEA analyst Ciaran Healy said.
Flight activity hit a seven-week high in the United States and a 14-week high in Europe last week, JPMorgan analysts said on Wednesday. China’s activity was at 105.3% of 2019 levels, pushing global air traffic to just above the 2019 levels for the first time, they noted.
The divergence in air travel and fuel consumption has raised questions of whether jet fuel demand will surpass its pre-pandemic peak at all, said Alex Hodes, an oil analyst with brokerage StoneX.
Efficiency gains alone have reduced jet fuel demand by around 10% versus the same level of activity before 2020, and it will take at least another year for fuel demand to make up for these changes, said Commodity Context analyst Rory Johnston.
The IEA expects jet fuel demand to hit a record later this decade, while analysts at Rystad said they expect global jet demand to cross 8 million bpd in 2026.
“We’re barely are at the same level of 2019, while without the pandemic we should have been 16%-20% higher since aviation was growing at 4% per year until 2019,” Rystad head of oil macro Claudio Galimberti said.
(Reporting by Shariq Khan in New York and Seher Dareen in Bengaluru; Editing by Liz Hampton and Bill Berkrot)