U.S. jet fuel prices hit by demand fears on coronavirus

By Stephanie Kelly

NEW YORK (Reuters) - Falling demand for jet fuel worldwide because of the deadly coronavirus has hit U.S. prices for the product, which dropped to its lowest seasonally in five years, market participants said.

The coronavirus outbreak, which has spread to over 20 countries and led to more than 400 deaths, has caused many airlines to stop flights to parts of China, weakening demand for jet fuel. Oil markets have dropped just under 20% in the wake of the virus' spread, a signal of market fears of a sharp drop in demand, even though it is difficult to quantify the extent of the decline in usage.

In January the average amount of jet fuel on the water, in transit, was 11% lower than the same time last year, said Matt Smith, director of commodity research at ClipperData. That decline is likely to accelerate in February as more travel restrictions are put into place to quell the outbreak, he said.

In the United States, jet fuel stocks rose to 42.8 million barrels in the week to Jan. 24, the highest for January-end since 2017, the U.S. Energy Information Administration said.

For a graphic on U.S. jet stocks: https://fingfx.thomsonreuters.com/gfx/editorcharts/USA-PRODUCTS-VIRUS/0H001R897BRG/index.html.

Graphic: U.S. jet fuel stocks rise to 3-yr high, https://fingfx.thomsonreuters.com/gfx/mkt/13/1757/1731/U.S.%20jet%20fuel%20stocks%20rise%20to%203-yr%20high.png

The shift in jet demand has weighed on prices for the product in U.S. cash markets, traders said. Gulf Coast jet fuel cash differentials fell to 14.25 cents per gallon below the heating oil futures benchmark on the New York Mercantile Exchange (HOc1), the weakest seasonally since 2015.

On the U.S. West Coast, prices have plummeted as cheaper supplies are being sent into the region from Asian markets. Jet fuel for delivery into Los Angeles is down 25% in the last month, to $1.5997 on Monday from $2.1266 a gallon, traders said.

"California sources the majority of their jet from the Far East. Those low-priced barrels coming into the U.S. West Coast market have really made those prices fall," a U.S.-based trader said.

U.S. distillate refining margins have already had a bad start to 2020 and sit at the lowest level seasonally since 2017, Refinitiv Eikon data shows. Distillate futures on NYMEX have dropped 21.6% since the start of the year.

Asian refining margins for jet fuel in January posted their biggest monthly decline in a more than a decade.

"Asian jet fuel led by China is the key growth driver of the global oil market," Paul Sankey, managing director at Mizuho in New York, said in a note this week.