M6 BARRON’S March9,2020
porting Countries and its allies, led by
Russia, on March 6 failed to reach a deal to
cut oil output by an additional 1.5 million
barrels a day to the end of the year. That
sent prices global benchmark Brent fu-
tures to a nearly three-year low.
Prices for oil products have been declin-
ing as well. Wholesale U.S. Gulf Coast jet
fuel has fallen by 65 cents a gallon from
the start of the year to $1.28 on March 6,
while national diesel retail prices were
down to $2.80 a gallon from $2.994 at the
beginning of the year, according to Patrick
De Haan, head of petroleum analysis at
fuel-price tracker GasBuddy.
The Dow Jones Transportation Average
DTXK, a gauge of the U.S. transportation
sector, has lost more 17% year to date as of
March 6. The average price for regular
gasoline was at $2.403 a gallon on March
6, down from $2.556 on Jan. 1, “but that’s
typical into winter,” says De Haan.
Still, Covid-19, “without a doubt, has
delayed the onset of the seasonal [price]
rally [for gasoline] that we tend to see start
in February, as refiners slow down, do
maintenance, and begin the transition to
summer gasoline,” he says.
Even beforethe coronavirus outbreak,
the energy market was looking at demand
destruction for U.S. fuels, as a “very mild
winter crimped demand for natural gas as
well as heating oil and diesel,” says Tom
Kloza, global head of energy analysis at the
Oil Price Information Service. “We should
see weak demand for distillate [which in-
cludes diesel and heating oil] this month,
thanks mostly to lower trade with China.”
Jet fuel, however, is the “most suscepti-
ble to demand losses,” and if “we continue
to see U.S. companies limit travel, or if
conferences get cancelled, it will have quite
an impact on this part of the barrel,” Kloza
says.
He added that “all of the extrapolations
about global oil demand through the next
three quarters are premature until we
know how this outbreak proceeds.”B
COMMODITIES
Jet Fuel Prices Plummet
As Travel Demand Drops
D
emand for transportation fuels
has declined significantly along
with prices, and both are set to
worsen as the coronavirus con-
tinues to spread around the world, feeding
fears over travel.
James Williams, energy economist at
WTRG Economics, says he expects to see a
“significant drop’’ in demand for diesel
and jet fuels, although at this point, the
“duration and extent of the decline is as
unpredictable as the spread of the
coronavirus.”
“In the U.S., the cancellation of flights to
and from China is certainly cutting into jet
fuel consumption,” he says. “Cancellation
of conferences will only increase as people
want to avoid large gatherings.”
Over the four-week period ending on
Feb. 28, U.S. jet fuel consumption was
down 5.5% from the same period a year
ago, according to the Energy Information
Administration. Motor gasoline consump-
tion was up by 1% for the same period, but
distillate demand, which is mostly diesel,
fell by 3.8%.
“What we know for sure is that the
month of February will record the worst
oil demand contraction since the Great
Recession,” wrote Claudio Galimberti,
head of demand, refining, and agriculture
analytics at S&P Global Platts, in a late-
February note. “We also know that global
aviation will be hit very hard across Asia
and take months to get back in shape.”
Lower demand for the petroleum prod-
ucts comes on the heels of weaker oil
consumption. IHS Markit expects first-
quarter world oil demand to mark its larg-
est quarterly volume decline in recorded
history.
It estimates world oil demand at 96 mil-
lion barrels a day for the quarter, down 3.8
million barrels a day from a year earlier.
U.S. and global benchmark crude futures
have shed more than 30% this year.
The Organization of the Petroleum Ex-
By Myra P. Saefong
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