Jet fuel consumption remains the hardest-hit section of the global oil market as passengers avoid air travel because of the pandemic and government travel restrictions.

The specific problems of the jet market explain why refinery margins for closely related distillates such as diesel are being hit much harder than benchmark oil prices.

Jet fuel’s travails have helped push distillate margins to their lowest levels for more than a decade and are undercutting refinery demand for crude.

Sustained recovery in distillate margins and crude oil prices will therefore depend on a wider resumption of cross-border aviation.

But an early resumption of long-haul flights is looking less likely than a few months ago, given the resurgence of coronavirus cases in many parts of the world.

So an upturn in jet consumption, and with it distillate margins and crude oil prices, depends on one or more of three factors: early deployment of an effective COVID-19 vaccine; alternative methods of infection control (such as rapid testing or improved contact tracing and isolation); or lifting air travel restrictions with or without a vaccine.

Quarantines and other infection controls have mostly been imposed on a national or occasionally continental basis, and on potentially infective passengers rather than manufactured products.

As a result, passenger aviation has been hit much harder than freight, and within the passenger sector, long-haul intercontinental flights have been more severely affected than short-haul and domestic services.

Domestic markets rebound

Globally, air freight tonne-kilometres were down just 18 per cent in June compared with passenger revenue-kilometres down 87 per cent, according to the International Civil Aviation Organisation.

In Hong Kong, which has adopted some of the strictest quarantine requirements, air cargo volumes were down just 2 per cent in August from a year earlier while passenger numbers, excluding transit passengers, were down 99 per cent.

On the passenger side, countries with a large domestic market, including the United States and China, have seen a stronger rebound than countries that depend on international departures and arrivals such as Britain.

China’s passenger aviation volume was down by about 40 per cent in August compared with the same month a year earlier, based on passenger-kilometres flown, according to the National Bureau of Statistics.

By contrast, Heathrow airport reported passenger numbers were down by 69 per cent in August for domestic and short-haul flights within Europe, and down by 92 per cent for long-haul flights outside Europe.

Business-related travel has been hit harder than leisure journeys as a result of the cancellation of conferences and in-person customer visits.

Most aviation experts expect business travel to recover more slowly than leisure journeys over the next 12 to 24 months, mirroring the experience after previous business cycle downturns.

The recession’s lingering effects will encourage corporate managers to focus on cost control even once coronavirus restrictions are lifted, and discouraging discretionary flights is the easiest target for short-term savings.

Jet fuel consumption takes off

Global jet fuel consumption was about 8 million barrels a day in 2019, or about 8 per cent of global petroleum consumption, according to BP.

But it has been one of the fastest-growing sections of the market over the past decade, with consumption growing by almost 2.7 per cent a year between 2009 and 2019, compared with 1.6 per cent for all petroleum products.

While jet consumption remains a relatively small component of the total petroleum market, it is much larger compared with the market for other similar middle distillates.

In 2019, jet fuel accounted for 22 per cent of worldwide consumption of middle distillates, a group of fuels which also includes diesel, heating oil, gasoil and kerosene, and totalled about 36 million barrels a day.

The pandemic-driven slump in aviation, especially fuel-hungry long-haul passenger aviation, has cut jet consumption by more than half.

Even with its domestic market, jet fuel consumption in the US is still down by more than 55 per cent compared with levels from a year ago, according to weekly estimates from the US Energy Information Administration.

Jet fuel, with strict quality specifications, is normally a premium product and makes a big contribution to refinery margins and profitability.

Following the pandemic, however, refiners have been forced to dump unwanted jet fuel into the broader and less-profitable pool for other middle distillates.

The diversion of surplus jet fuel has contributed to oversupply and bloated stocks of other middle distillates and is weighing on refining margins.

In turn, oversupply of distillates and poor margins are incentivising refineries to limit their crude purchases and processing, holding back wider recovery in the oil market.

Iraq is exporting more crude so far in September than it shipped last month, a sign that the country is falling further behind in efforts to comply with its Opec+ production limit.
A long-time laggard, Iraq already owes its partners in the producers’ group compensation cuts to make up for pumping too much in past months. With these extra reductions that Iraq promised for August and September, its production goal would be about 3.4mn barrels a day.
In the first 15 days of September, Iraqi exports alone reached 3.26mn barrels a day, 8% higher than last month’s daily average, according to tanker tracking data compiled by Bloomberg. Adding as much as 650,000 barrels a day of crude to account for Iraqi refinery use would put Opec’s second-biggest producer well over its production limit.
Sixty years on from its founding, the Organization of Petroleum Exporting Countries is restricting output with other major producers to try to revive the oil market from the Covid-19 demand crisis. Leaders of the Opec+ coalition were chairing a monitoring meeting yesterday to make sure group members toe the line, so the timing of data suggested rising exports from Iraq is awkward.
Earlier this month, Iraq said it might need more time to implement its promised additional production cuts.
Iraq pumped 3.72mn barrels a day in August, according to a Bloomberg survey. Iraq’s oil ministry and its state oil marketer didn’t immediately respond to requests for comment.
Crude prices have slipped since the end of August on concern that coronavirus flare-ups will slow a recovery in demand and that Opec+ compliance may be slipping.
Opec was already facing compliance questions concerning the UAE, which pumped at least 100,000 barrels a day more than it should have in August. Tanker tracking can shed light on how much oil a country is producing. However, countries may sell barrels from storage, and those don’t count toward output limits. Producers also sometimes mix other petroleum products into the crude they ship, inflating their export numbers.
The daily average provided by preliminary tanker tracking may also change over the month because shipments are not always spread uniformly over the period.
After reviving crude prices from an unprecedented collapse over the spring, Opec+ is seeing the recovery stall and fuel demand falter as the deadly pandemic surges once again.
The peak holiday driving season has passed in the US, yet rush-hour traffic is still sparse and crude inventories stubbornly high. In India, the third-biggest consumer, transport-fuel sales remained 20% below year-ago levels last month. Even in China, where refiners binged on crude at the height of the crisis, buying has slowed.

LONDON/DUBAI (Reuters) – The United Arab Emirates has emerged as a major laggard in delivering oil output cuts in August, figures used by OPEC+ showed on Wednesday, as the group meets this week amid signs of a faltering demand recovery.

Compliance with oil production cuts in August among OPEC+ members was seen at around 101%, four OPEC+ sources told Reuters on Wednesday, a figure calculated using production assessments from six secondary sources.

Several of the secondary sources showed the UAE missed its target in August, with the International Energy Agency (IEA) giving OPEC’s third-largest producer a score of only 10%, significantly lower than an average of around 80% from other sources.

The UAE had said its overproduction was due to higher demand for associated gas for power generation, driven by hot weather and more people ditching foreign holidays, adding that it will compensate for the August rise by reducing its oil supply in the coming months.

Abu Dhabi National Oil Company (ADNOC) will reduce crude oil supplies to term buyers in October and November.

A technical committee of the alliance of the Organization of the Petroleum Exporting Countries and its allies, known as OPEC+, meets on Wednesday to discuss market fundamentals and compliance.

One of the OPEC+ sources said the UAE will submit its plan to compensate for its overproduction in August.

Secondary source data including from the IEA, price reporting agencies S&P Global Platts and Argus Media, and publication Energy Intelligence have shown that laggards Iraq and Nigeria have by and large made efforts in August to compensate for their overproduction.

A higher-level ministerial monitoring committee meets on Thursday, and is unlikely to announce recommendations for expanding the oil cuts – currently at 7.7 million bpd until the end of the year – any further, sources told Reuters this week.

The meeting, instead, is expected to extend the compensation period for countries such as Iraq and Nigeria for their past overproduction, and discuss underperformance from other members, including the UAE.

The meetings come against the backdrop of worsening demand forecasts, including from OPEC.

In its monthly report, the organisation said it expected world oil demand to fall by 9.46 million barrels per day (bpd) this year, more than the 9.06 million bpd decline expected a month ago. [OPEC/M]

The OPEC forecast chimes with a worsening demand outlook outlined by the International Energy Agency and major oil industry producers and traders.

Activist investor Elliott Management Corp. has taken a stake in Noble Energy Inc., the energy explorer that agreed in July to sell to Chevron Corp. for about $5 billion.

The stake was disclosed in a filing Tuesday with the U.S. Federal Trade Commission. Noble Energy and the New York-based hedge fund run by Paul Singer were granted early termination under the FTC’s Hart-Scott-Rodino Act — a requirement when an investor buys shares in a company above a certain threshold and seeks to hold discussions about such things as strategy or management changes.

Climate-change activists are pressuring Joe Biden to distance himself from former Obama administration advisers they view as either too moderate or too cozy with the fossil-fuel industry, a sign of disunity on the eve of the Democratic convention.

Groups such as Data for Progress and the Revolving Door Project are building a case against some people advising the Democratic presidential nominee, such as former Energy Secretary Ernest Moniz and President Barack Obama’s environment aide Heather Zichal. Both have served on the boards of companies linked to fossil fuels since leaving government.

The effort reflects simmering tension between the party’s moderate nominee and progressives whose votes he needs to win. Polls show a lack of enthusiasm for Biden among young voters, something that could be exacerbated by open divisions within the environmental movement. But if climate activists succeed in pulling him to the left, it could cost him mainstream support.

The activists are collecting information on the advisers and formulating a strategy that could include a letter-writing campaign and petitions, similar to what has been employed to pressure Biden to sever ties with Obama’s one-time National Economic Council Director Larry Summers. Summers is a contributor to Bloomberg Television.

Obama’s record on cutting greenhouse-gas emissions was widely regarded as ambitious at the time. But activists say now there’s no time left for anything other than a no-holds barred approach.

Not everyone’s on board with the activists’ approach, with the election quickly approaching. Biden is close to naming a running mate as the party prepares for a trimmed down, four-day nominating convention in Milwaukee set to begin Aug. 17.

Bigger Objective

Some environmentalists prefer to focus on helping Biden defeat President Donald Trump and stop his rollback of environmental regulations. Trump, who is withdrawing the U.S. from the Paris climate treaty, has repeatedly called climate change a “hoax.” By contrast, Biden’s $2 trillion plan for combating climate change won robust praise last month from across the spectrum of environmental advocacy groups.

Others worry that a climate purity test means muzzling some of the nation’s top energy experts.

“It’s OK right now that he’s relying on those people, because he’s got to focus on the primary objective — which is stopping the catastrophe we are in right now,” said Brett Hartl, chief political strategist for the Center for Biological Diversity Action Fund.

But critics say Biden’s reliance on a stable of former Obama energy officials is already limiting the Democratic presidential candidate’s climate ambition.

Read More: Biden Feels Heat From Left to Drop Larry Summers as an Adviser

“The people who built the system and are profiting from it are not going to want to tear it down,” said Collin Rees, a senior campaigner with Oil Change U.S., an environmental group that advocates shifting away from fossil fuels.

None of the targeted officials are employed by the Biden campaign, though Zichal, Bordoff and Moniz have informally advised it, according to people familiar with the matter who asked not to be identified. And the campaign is widely consulting outsiders; senior campaign officials said they conferred with scientists and leaders of the environmental justice movement in developing Biden’s $2 trillion climate plan.

The activists point to signs of caution, including language in a Biden-Sanders unity task force report that rules out public financing of overseas coal projects but leaves the door open for supporting natural gas ventures.

Obama’s Record

Some environmental activists are advancing an array of choices deemed acceptable as possible cabinet members — from Washington Governor Jay Inslee for Interior secretary to California Air Resources Board Chair Mary Nichols as Environmental Protection Agency administrator.

Biden is naturally relying on advice from some of Obama’s old hands, having worked with many of the same advisers during his eight years as vice president, Hartl said.

Activists say they are most concerned by what Biden’s team has done in recent years — not the policies they pushed as part of the Obama administration.

“We are gearing up,” said RL Miller, chair of California Democratic Party’s environmental caucus and a member-elect to the Democratic National Committee. “We will be exposing the flaws in these people’s records as climate peacocks and we will be making it toxic for Joe Biden to be taking advice on matters of energy from them.”

LNG Exports

Zichal has served on the board of Cheniere Energy Inc., which became the first major U.S. exporter of shale gas in 2016, and has stressed the need to find a “middle ground” environmental policy. She also continues to promote marine protections and sustainability as head of the Blue Prosperity Coalition, has discouraged new offshore drilling off South Africa and previously was vice president of corporate engagement for the Nature Conservancy. Zichal declined to comment.

Like Summers, Bordoff has praised energy exports, noting earlier this year that increased foreign sales of liquefied natural gas help lower the price of the fossil fuel that can displace dirtier-burning coal in generating electricity. He has also warned about “dwindling time” to make progress fighting climate change and last month argued the issue should be “squarely at the center of U.S. foreign policy.”

Bordoff is helping guide Columbia University’s creation of a climate school and develop a public database with environmental groups to track whether countries are spending Covid-19 recovery dollars to underwrite fossil fuels or clean energy.

“Throughout his career in policy and academia, Jason has focused on the urgency of the climate crisis and worked to achieve more rapid and ambitious action to achieve net-zero emissions by 2050,” said Artealia Gilliard, the Center on Global Energy Policy spokeswoman.

Deep Decarbonization

Moniz, an informal adviser to the Biden campaign, has joined the board of Southern Co., a utility that generates power from natural gas, coal, nuclear and renewables. He also proposed a “Green Real Deal” alternative to the “Green New Deal” backed by progressives. He’s drawn fire for forming a partnership with the AFL-CIO that endorses an “all-of-the-above” climate change strategy.

David Ellis, a spokesman for the Energy Future Initiative, a think tank led by Moniz, declined to comment. But he pointed to testimony Moniz gave earlier this year saying he “endorses a focus on the simultaneous needs for achieving deep decarbonization and ensuring that social equity issues are central in the clean energy transition.”

Hochstein, a former special envoy and coordinator for international affairs under Obama, worked with the State Department to ensure American energy companies had access to global oil fields. More recently, he has warned of the need to stabilize oil-dependent nations as the world moves away from petroleum and has stressed the importance of natural gas in buttressing renewable power.

“I am not advising the Biden campaign, and I fully and 100% support the climate agenda that the campaign has laid out,” Hochstein said.

Biden should be getting advice from people who recognize there needs to be an end to fossil fuels instead of embracing “false solutions” that allow the construction of more oil pipelines and gas development for decades to come, said Rees, the Oil Change U.S. official.

“Ten years ago, we were certainly in a different place,” Rees said. “Today, there’s no lack of powerful voices, there’s no lack of people who know their stuff, there’s no excuse for essentially defaulting to energy consultants when you are talking about these kinds of things.”

تصاعدت التوترات بين اليونان وتركيا في الفترة الأخيرة بعدما أرسلت أنقرة سفينة للتنقيب عن النفط بالقرب من منطقة تطالب بها أثينا.

خبير الطاقة الدولي رودي بارودي أجرى في حديث لـ”سبوتنيك”، تقييماً للوضع المتفجّر بين الطرفين، فقال: إذا لم تلتزم الأطراف بالمبادئ ذاتها الناتجة عن اتفاقية الأمم المتحدة لقانون البحار، ولم تسارع إلى إيجاد أرضية مشتركة، فإن مخاطر النزاع المسلح جدية. فتركيا واليونان يمكنهما الاستئناف أمام المحاكم الدولية، ويمكنهما كذلك اللجوء إلى التحكيم إذا فشل الطرفان في الاتفاق على شكل من أشكال الإجراءات الدبلوماسية التقليدية لحل مطالبهما الإقليمية المتداخلة.

ووفق بارودي “يمكن ان يكون هناك حل عادل لكلا الطرفين، حل ينطلق من “منطق محايد” لقانون البحار، والذي تم استخدامه في مناسبات عدة في أجزاء أخرى من العالم لحل النزاعات سلمياً. ويمكن لشركات مثل Fugro التي تقدمّ حلولاً متقدّمة لرسم الخرائط و/ أو تستخدم خرائط عالية الدقة للشواطئ، أن تقدّم سريعاً “نتائج دقيقة ومتّسقة” لكل ولاية”. وتابع: هذا هو الطريق: الاعتماد على القانون والعلم والقواعد المعمول بها… وليس على التهديدات والشرائع.

وتعليقاً على الاتفاقات التي وقّعتها من أجل إعادة تحديد حدودها البحرية، تركيا مع ليبيا في عام 2019 من جهة، واليونان مع مصر في 6 آب من جهة أخرى، وما إذا كانت هذه المعاهدات معترف بها من قبل الدول المجاورة والمجتمع الدولي، قال بارودي “في الوضع الراهن، حدّدت هذه الدول الساحلية الحدود البحرية التي يبدو أنها تضمّ مناطق متداخلة ولا يزال لدى الدولتين الحق في رسم مثل هذه الحدود بموجب القانون الدولي، لكن هذه المعاهدات تلزم فقط تلك الدول التي تصادق عليها وليس دولًا ثالثة”.

Twenty-four European Union countries complained to the U.S. State Department this week over President Donald Trump’s expansive use of sanctions to help influence American foreign policy goals, according to a European diplomat familiar with the communication.

The message, supported by all but three of the bloc’s member states, was given on Wednesday, said the diplomat, who asked not to be identified because the correspondence hasn’t been made public.

Read More: U.S. Threat of ‘Crushing’ Gas Pipeline Measures Riles Berlin

The so-called demarche was based on a July 17 statement by the EU’s top foreign policy official, Josep Borrell, in which he condemned U.S. intimidation tactics. He specifically cited Trump’s sanctions aimed at halting construction of the Nord Stream 2 gas pipeline, which would link Russia and Germany.

“Our actions are aimed at curbing Russia’s malign activity,” according to an emailed statement from a State Department spokesperson. “We continue to work with our European partners to make it clear that Nord Stream 2 enables Russia to use its energy supplies as a political weapon in Europe and undermine Ukrainian security.”

Relations between the U.S. and the EU — and Germany in particular — have plumbed new lows, with Trump hitting his transatlantic allies with sweeping tariffs and pulling out of multilateral agreements such as the Paris climate accord and the Iran nuclear deal. Trump also announced plans to withdraw about 12,000 troops from Germany last month, saying Chancellor Angela Merkel’s government had been “delinquent” on defense spending.

‘Illegal’ Sanctions

“There was an informal outreach which the EU member states could join on a voluntary basis,” EU Spokeswoman Nabila Massrali told reporters on Friday when asked about the complaint. She added that the U.S. threatening sanctions against European companies was “part of a wider, worrying trend.”

The Nord Stream 2 gas pipeline has become a central point of tension between Merkel and Trump, who has blasted the project for sending “billions” to Russia. Merkel has called new sanctions aimed at the gas route illegal. Still, there is no consensus among the EU on Nord Stream, with countries such as Poland condemning the pipeline for bypassing eastern Europe and increasing the bloc’s reliance on Russian energy.

Last week, three Republican Senators ratcheted up tensions with a letter warning that a German Baltic Sea port would face “crushing legal and economic” sanctions if it continued to participate in the completion of the pipeline. Mukran Port, located in Merkel’s constituency, is a supply base for the 1,200-kilometer (745-mile) undersea pipeline.

German Foreign Minister Heiko Maas this week said EU member states would discuss to what extent extraterritorial sanctions violate international law, as he renewed his condemnation of U.S. threats.

“No state has the right to dictate Europe’s energy policy with threats — and it won’t work,” Maas told reporters Monday alongside Russian Foreign Minister Sergei Lavrov during a daylong visit to Moscow.

All stakeholders of Nord Stream 2 still aim to complete the gas link, Lavrov said at the briefing. “There are reasons to assume that it will be done in the near future.”

OPEC said on Wednesday that world oil demand will fall more steeply in 2020 than previously forecast due to the pandemic and there were uncertainties about next year’s recovery.

World oil demand will fall by 9.06 million barrels per day (bpd) this year, the Organization of the Petroleum Exporting Countries said in a monthly report, more than the 8.95 million bpd decline expected a month ago.

Oil prices have collapsed as the coronavirus curtailed travel and economic activity. While some countries have eased lockdowns allowing demand to recover, concern over new outbreaks has kept a lid on prices and OPEC expects this to persist.

“Crude and product price developments in the second half of 2020 will continue to be impacted by concerns over a second wave of infections and higher global stocks,” OPEC said in the report.

OPEC stuck to its forecast that in 2021 oil demand would rebound by 7 million bpd but said the view was subject to large uncertainties that may result in “a negative impact on petroleum consumption,” such as demand for air travel, more fuel-efficient cars and more competition from other fuels.

“Almost all forecasters expect jet fuel in 2021 to struggle making up for lost demand,” OPEC said. “Gasoline demand will face pressure to return to 2019 levels.”

To tackle the drop in demand, OPEC and its allies, known as OPEC+, agreed to a record supply cut of 9.7 million bpd that started on May 1, while the United States and other nations said they would pump less.

In the report, OPEC said its output rose by 980,000 bpd to 23.17 million bpd in July, largely because Saudi Arabia and other Gulf members ended extra voluntary cuts they had made in June.

That amounted to 97% compliance with the pledges, according to a Reuters calculation – lower than June’s figure of well above 100%.

Shale explorers parked more rigs last week as oil’s rebound proves insufficient to boost drilling work from the lowest level in more than a decade.
The number of active oil rigs in the US fell by four to 181, the least since June 2009, according to Baker Hughes Co data released on Friday.
With crude still well below its pre-pandemic peak earlier this year, producers are focusing on wells that were already drilled and waiting to be fracked as a cheaper alternative for adding production.
“Declines in drilling activity have continued, though at a decelerating rate in the latter half of” the second quarter, Connor Lynagh, an analyst at Morgan Stanley, wrote last week in a note to investors. But, as activity appears to stabilise, the “recovery path remains a key debate.”
Worldwide lockdowns to prevent the spread of Covid-19 had a devastating impact on crude demand at a time when shale explorers were already struggling with too much debt and shareholders were urging them to spend less. While benchmark US oil futures have roughly doubled to $40 a barrel since the start of May, prices are still down by more than 30% for the year.
The rig count is a closely watched metric because it’s long been considered indicative of future crude production. The relationship is imperfect, however, because of the time lag between drilling a well and commencing production, as well as other factors such as the turning off of existing wells in response to price movements.