March 19, 2020 [Reuters – Published on 18/03/2020] – Major oil companies including BP and Shell are preparing to take the rare step of storing jet fuel at sea as the coronavirus outbreak disrupts airline activity globally, while refiners are shifting to diesel because of the poor margins associated with jet fuel production.
Jet fuel demand has cratered as airlines suspend flights due to the coronavirus pandemic, which globally has infected more than 204,000 people and killed 8,700, prompting travel restrictions from governments around the world, including the United States. Market participants and refiners have had to scramble to adjust to incredibly low prices.
Storing jet fuel at sea, however, is something of a last resort. The product is sensitive to contamination and degrades more quickly than other refined fuels and especially crude oil, so after a few months, it no longer can be used for aviation, according to analysts.
“The industry generally expects products will be used within three months of being produced,” said George Hoekstra, an independent consultant specializing in hydroprocessing technology.
Gulf Coast jet cash prices were at 26.50 cents per gallon below futures, the lowest seasonally since at least 2011, the earliest data available, Refinitiv Eikon data showed.
Jet fuel demand averages about 8 million barrels per day, but that has already dropped by about 20%, according to Robert Campbell, head of oil products at consultancy Energy Aspects.
Overall, the oil market could see a record build in supply in April that could overwhelm storage capacity within months, analysts said.
BP has provisionally booked the 60,000-tonne Stena Polaris tanker to store jet fuel for 40 to 60 days starting March 20 to March 22 at a rate of $25,500 a day, according to shipping and trading sources.
A BP spokesman declined to comment.
Royal Dutch Shell has provisionally booked Torm Sara to store jet fuel for 90 to 120 days, sources said.
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