Jet Fuel Demand Needs A Vaccine

1. Spending on electricity surpassed fuels

- For the first time since 1960, U.S. consumers spent more on electricity than they did on gasoline and other fuels.

- The shift is the result of the plunge in spending on fuel (from reduced mobility) and a sharp increase in spending on electricity.

- In April, Americans spent 1.65 percent of their personal income on electricity, and 1.14 percent on fuels.

- The shift is not permanent, but as EVs spread over time, more spending will be allocated to electricity relative to fuels.

2. Refineries hit hard in Europe

- A slew of refineries in Finland, France, and the Netherlands are slated for closure as the downstream market continues to suffer.

- For September, refineries in Europe likely operated 25 percent below capacity, according to IHS Markit.

- Meanwhile, the fuel mix is also causing problems. Gasoline demand has rebounded, but with jet fuel far below pre-pandemic levels, distillate margins have collapsed. Refiners churn out both fuels when they process, exacerbating the distillate glut.

- "It's very difficult for anyone to make money when diesel cracks are at this level," UBS Group AG analyst Henri Patricot, told Bloomberg. "We continue to see a demand recovery, but it has slowed."

- Diesel's premium to Brent crude fell to just $4 per barrel, just off of a nine-year low hit in mid-September.

3. Wheat and corn prices surge

- Corn and wheat inventories fell again in a recent U.S. Department of Agriculture data release.

- Corn stocks are 10 percent below year-ago levels, falling below 2 billion bushels.

- Markets had anticipated stocks of around 2.25 billion bushels, so the surprise drawdown led to a surge in prices on Wednesday, pushing corn above 380 cents per bushel, the highest level since March.

- The story is similar for wheat - wheat prices jumped by more than 5 percent when government data showed a surprise drawdown.

4. Gold rally comes to an end

- Last week, gold, silver, and platinum all posted their sharpest weekly losses since March.

- "The significant losses were triggered by the rising US dollar, which apparently prompted speculative financial investors to cover net long positions they had previously entered," Commerzbank wrote in a note.

- Speculative net long positions in gold plunged by nearly 30,000 contracts, reversing a three-week build-up over just one week.

- Much of the recent slide can be chalked up to the recent appreciation of the dollar.

5. Jet fuel demand dependent on vaccine

- Earlier in the pandemic, oil demand forecasts tended to predict a V-shaped recovery, and ultimately, analysts repeatedly pushed off their predictions for the return of pre-pandemic oil demand as the downturn dragged on.

- September jet fuel demand was 4 mb/d below September 2019 levels. International travel is down 62 percent.

- Goldman Sachs maintains a bullish outlook for 2021, which hinges on "improving" jet fuel demand. The investment bank believes that passenger traffic will normalize to 2019 levels, but not before 2023.

- Despite the length of time it takes to rebound, the bank has a "constructive" outlook for oil next year.

- Goldman believes a vaccine is likely by the second quarter next year, which leads to an increase in jet fuel demand by 3.9 mb/d from current levels by next summer.

6. China's buying spree ends

- China went on a buying spree earlier this year when the markets went into a tailspin, stocking up on cheap crude. That allowed China to fill up inventories on the cheap, and it also provided somewhat of a cushion to the oil market.

- But the elevated purchases quickly came to an end - China's inventories are near record highs, rising to 72.7 percent of total capacity for the week ending on September 24, which is just short of an all-time record high of 73 percent.

- The drop off in the number of super-tankers heading to China illustrates the drop off in imports, a bearish headwind for the oil market. "China's crude imports peaked in June and imports from September will only stay flat from August level," Li Li, an analyst with ICIS-China, told Bloomberg.

- However, China's traffic congestion has also rebounded back to January levels, and the economy has rebounded faster than Europe and the U.S.

7. New Mexico takes over from Texas

- By some measures, New Mexico has surpassed Texas in terms of attractiveness for shale drillers. There are more rigs in some New Mexico counties than their counterparts just across the border in Texas.

- However, the problem is that acreage favored by drillers in New Mexico is located on federal land, a problem since those lands could be barred from new drilling under a potential Biden administration.

- For now, U.S. shale E&Ps are stocking up on drilling permits ahead of new restrictions. In the first nine months of 2020, permit applications for these New Mexico counties surged by 25 percent.

- The American Petroleum Institute said that 62,000 jobs are at risk of a ban on drilling on federal lands. Roughly 39 percent of New Mexico's state revenues came from oil and gas.