As restrictions ease across Europe, we are slowly seeing a resurgence in fuel demand for travel, not only in gasoline and diesel but also in jet fuel as travel and tourism gradually pick up.
In recent weeks, there has been some optimism across Europe as U.K. fuel sales reached their highest level since the start of the pandemic restrictions in 2020. In addition, toll roads across France, Italy, and Spain experienced their greatest use since the same months in 2019.
As European refiners produce over twice as much diesel as gasoline, the demand increase for passenger cars, freight transportation, and certain types of heating that use the fuel looks promising. The IEA believes Europe’s oil demand could increase by as much as 9 percent this quarter and 4 percent in the third quarter, based on current trends.
Since pandemic restrictions are gradually easing across most of Europe, and a greater reduction is expected for the summer months, demand looks set to increase for everyday commuting, tourism, and across several industries such as manufacturing and freight.
Gasoline demand goes beyond Europe, with exports to the U.S. of the light fuel hitting a near two-year high in March, as several disruptions to North American refining called for import hikes. While exports have since dropped slightly, they are still significantly higher than in the same period of 2020.
The supply shortage of gasoline in North America and the shutting down of several major refineries across Europe have meant a climb in gasoline prices, making the fuel more attractive than diesel at present. But a return to pre-pandemic global industrial activity could see this change, as diesel demand intensifies.
It is not only European refineries that have added to diesel stocks this quarter, as the lag in air tourism has led to large surpluses of jet fuel, much of this extra fuel has been blended into diesel.
While there is a significant supply of diesel in Europe, ready to meet the increased demand over the coming months, jet fuel may not be needed for other uses by the summer as air tourism is expected to increase substantially in line with Covid-19 vaccines and the easing of travel restrictions.
This shift is being driven mainly by the U.S., which saw 1.85 million passengers pass through airports last Sunday. This is the highest number since the beginning of the pandemic restrictions in March 2020.
In Europe, both Portugal and the Netherlands have opened up travel, and the U.K. has made it possible to travel to certain locations as a tourist. Additionally, just this week, the EU has announced that it will open its frontiers to vaccinated travelers. This could have a huge impact on jet fuel demand as a large percentage of U.S. and Canadian citizens are now vaccinated. Most of the passengers registered at U.S. airports last week were flying domestic, however, with Europe opening up its borders this could all shift in the summer months.
George Ferguson, senior aerospace and airline analyst at Bloomberg Intelligence stated, “We think this summer is going to be a good summer,” said Ferguson. “The cheaper you can deliver seat miles, the more capacity you put in the marketplace, the closer you are to 2019 levels.”.
As North American refiners get back to work, Europe continues its strong diesel refining, and jet fuel demand looks set to steadily increase with the ease of restrictions, travel-related fuel demand could become the oil industry’s frontrunner once again.