Analysis-Jet fuel demand falters as Chinese curb overseas trips, US policies weigh

Yahoo

4 days ago

By Seher Dareen and Trixie Yap
LONDON/SINGAPORE (Reuters) -The recovery in global jet fuel demand is set to slow and stall below pre-pandemic levels this year and next as the Chinese travel abroad less, stringent U.S. immigration policies deter some tourists and aircraft fleets become more fuel-efficient.
Jet fuel accounts for around 7% of global fuel use and softer consumption leads to lower overall demand for oil and ultimately weaker oil prices. Less use of aviation fuel also reduces a source of 2.3% of greenhouse gas emissions.
Aviation fuel consumption has lagged the recovery seen in fuel oil and gasoline since the pandemic, held back largely by a decline in long-haul flights from Asia, particularly China, with tight consumer spending curbing travel budgets.
The International Energy Agency forecast in June that jet fuel consumption would reach 8 million barrels per day in 2027, above 2019's level of 7.9 million bpd, having earlier predicted it would recover to the pre-pandemic rate last year.
Demand grew by 5.6% last year, but the IEA expects a slowdown to 1.32% in 2025 and 1.29% next year.
U.S. President Donald Trump's crackdown on immigrants and his orders to tighten border policy are deterring some people from flying to the United States - one of the most visited countries in the world - over fears of being detained.
The aviation industry is also concerned that Trump's tariffs may dampen global growth and, therefore, demand for air travel.
J.P. Morgan expects global jet fuel demand to hold steady this northern hemisphere summer - usually a peak time for air travel. It sees U.S. demand flat at 1.7 million bpd through 2026, after surpassing 2 million bpd in May for the first time since 2019. Demand in Europe is also expected to be steady in the third quarter.
"We maintain a cautious outlook on air travel, as macroeconomic uncertainty and stricter U.S. immigration policies dampen U.S.-bound travel," J.P. Morgan analyst Natasha Kaneva said in a note.
Analysts at consultancy BMI, a Fitch group company, estimate a decline of 16.3% in U.S. arrivals for 2025.
Data from aviation analytics company Cirium shows a 1.2% fall in passengers expected from the United Kingdom to the U.S. in 2025 compared to last year. Other Europeans have been booking fewer trips there too.
Domestic air travel is also showing signs of stagnation, with internal flights contracting 1.7% year-on-year in May, the only domestic market to do so, according to data from the International Air Transport Association.
FUEL-EFFICIENT PLANES
China, the world's second biggest economy, was one of the last countries globally to come out of lockdown restrictions and its citizens still prefer domestic tourism, partly due to fears over longer-haul flights after the pandemic left some people stranded in multiple countries.
International flight capacity is relatively smaller at 9% compared to 29% in the U.S., according to data compiled by consultancy Kpler.
While domestic travel has rebounded to 2019 levels, overall flight growth in China is expected to remain tepid year-on-year, Macquarie Group strategist Vikas Dwivedi said.
Meanwhile in Indonesia, Southeast Asia's largest market, the number of seats on domestic and international flights in June declined 4.1% on the year, data from aviation consultancy OAG showed. They have declined year-on-year since January.
Improved efficiency and mileage in newer aircraft is another factor curbing jet fuel demand, as planes carry more passengers over longer distances while burning less fuel, energy and industry analysts say.
The world's largest planemaker Airbus says its new airplane would be 20-30% more fuel-efficient than the current A320neo family. The new plane, which has yet to be given a name, will enter service in 10-15 years.
When A320neo was introduced in the mid-2010s it already cut jet fuel use by nearly 15%.
Boeing's current 737 Max, the fourth generation of 737s, is also about 15% more fuel-efficient than the previous line.
Koen Wessels, head of demand at Energy Aspects, said not a lot of change is expected next year from the trends of increasing jet efficiencies and more uncertainty over the global economy affecting travel.
"The onus falls on Chinese demand to push global demand higher… However, this mostly hinges on the Chinese consumer (who) has been very unforthcoming in... spending ever since the pandemic."