Middle East – Wall Street Observer

Turkish court convicts executive, two jet pilots in Ghosn escape trial

Posted on Wed, Feb 24, 2021, 11:32amWed, Feb 24, 2021, 12:13pm by Reuters

By Ezgi Erkoyun

ISTANBUL (Reuters) – A Turkish court convicted an executive of Turkish jet company MNG and two pilots for migrant smuggling over their role in flying former Nissan Motor Co Ltd Chairman Carlos Ghosn out of Japan during his escape to Lebanon just over a year ago.

The court sentenced them to four years and two months jail, although their lawyer said they were not expected to serve time in prison as they had already been detained for several months.

Two other pilots and a flight attendant were acquitted, while charges were dropped against another flight attendant.

Ghosn, once a leading light of the global car industry, was arrested in Japan in late 2018 and charged with underreporting his salary and using company funds for personal purposes, charges he denies.

The ousted chairman of the alliance of Renault, Nissan Motor Co and Mitsubishi Motors Corp had been awaiting trial under house arrest in Japan when he escaped in December 2019 via Istanbul to Beirut, his childhood home.

Ghosn, who holds French, Lebanese and Brazilian citizenship, is still a fugitive and remains in Beirut, where he announced several months ago that he was launching a university business programme. Lebanon does not have an extradition treaty with Japan.

An executive from Turkish private jet operator MNG Jet and four pilots were detained by Turkish authorities in early January 2020 and charged with migrant smuggling.

The lawyer for one of the convicted pilots, Erem Yucel, told reporters they would appeal the verdict.

Convicted pilot Noyan Pasin said that staff and officials had not suspected anything was wrong with the flight, either in Japan or Turkey, so it was wrong to single out the pilots.

“We were expected to be suspicious and were sentenced because we weren’t suspicious,” he told reporters.

The defendants were released in July, when the first hearing was held, and are not expected to return to jail due to time they served. Japan is not known to have requested their extradition to face charges there.

The Ghosn saga has shaken the global auto industry, at one point jeopardising the Renault-Nissan alliance which he masterminded, and increased scrutiny of Japan’s judicial system.

Renault and Nissan have struggled to recover profitability following his tenure, during which both automakers say Ghosn focused too much on expanding sales and market share.

(Reporting by Ezgi Erkoyun; Writing by Ali Kucukgocmen; Editing by Daren Butler, Jonathan Spicer and Angus MacSwan)

Digital health checks vital to travel recovery, Heathrow says

Posted on Wed, Feb 24, 2021, 7:25amWed, Feb 24, 2021, 7:42am by Reuters

By Sarah Young

LONDON (Reuters) – Digital health checks will be vital to a recovery in foreign travel from the COVID-19 pandemic, Britain’s Heathrow airport said on Wednesday, after a collapse in passenger numbers saw it plunge to a 2 billion pound ($2.8 billion) loss last year.

The UK government said on Monday trips abroad could restart in mid-May as its vaccination campaign kicks in, sparking a surge in holiday bookings.

It is also looking into a digital health passport or app to help ease restrictions, while conceding the benefits have to be weighed against potential risks to civil liberties.

But Heathrow chief executive John Holland-Kaye said digital technology, and international agreements, would be vital to reviving a travel industry on its knees.

“It’s absolutely critical and that’s one of the main things that government needs to work on,” he said, when asked about a digital health app.

At present, paper checks on COVID-19 test results and passenger locator forms take 20 minutes per traveller at Heathrow, making travel near impossible should passenger numbers rise from current low levels.

Britain’s biggest airport said it was “very likely” people would be able to go on their summer holidays, but expects passenger numbers will take time to recover.

The airport, west of London, is forecasting 25 million passengers in the second half of the year, meaning it would be operating at about 50% capacity.

Heathrow, owned by Spain’s Ferrovial, the Qatar Investment Authority, China Investment Corp and others, last year lost its title as Europe’s busiest airport to Paris after its flight schedules shrank more than those of its rivals.

Passenger numbers plunged 73% to 22 million people last year, with half of those travelling during January and February, before the pandemic shut down global travel in March.

Heathrow said it had 3.9 billion pounds of liquidity, giving it sufficient resources to keep going with low levels of traffic until 2023, despite the 2 billion loss before tax for 2020.

The airport urged the government to provide business tax breaks for big airports, something only available to smaller airports so far, and to extend the furlough job support scheme to help it financially before the recovery takes off.

(Reporting by Sarah Young. Editing by James Davey and Mark Potter)

Oil rises on positive forecasts, slow U.S. output restart

Posted on Tue, Feb 23, 2021, 7:25amTue, Feb 23, 2021, 8:31am by Reuters

By Bozorgmehr Sharafedin

LONDON (Reuters) – Oil prices rose on Tuesday, underpinned by the likely easing of COVID-19 lockdowns around the world, positive economic forecasts and lower output as U.S. supplies were slow to return after a deep freeze in Texas shut down crude production.

Brent crude was up 36 cents, or 0.5%, at $65.60 a barrel by 1212 GMT, and U.S. crude rose 39 cents, or 0.6%, to $62.09 a barrel.

Both contracts rose more than $1 earlier in the session.

“Vaccine news is helping oil, as the likely removal of mobility restrictions over the coming months on the back of vaccine rollouts should further boost the oil demand and price recovery,” said UBS oil analyst Giovanni Staunovo.

Commerzbank analyst Eugen Weinberg said optimistic oil price forecasts issued by leading U.S. brokers had also contributed to the latest upswing in prices.

Goldman Sachs expects Brent prices to reach $70 per barrel in the second quarter from the $60 it predicted previously, and $75 in the third quarter from $65 forecast earlier.

Morgan Stanley expects Brent crude to climb to $70 in the third quarter.

“New COVID-19 cases are falling fast globally, mobility statistics are bottoming out and are starting to improve, and in non-OECD countries, refineries are already running as hard as before COVID-19,” Morgan Stanley said in a note.

Bank of America said Brent prices could temporarily spike to $70 per barrel in the second quarter.

Disruptions in Texas caused by last week’s winter storm also supported oil prices. Some U.S. shale producers forecast lower oil output in the first quarter.

Stockpiles of U.S. crude oil and refined products likely declined last week, a preliminary Reuters poll showed on Monday.

A weaker dollar also provided some support to oil as crude prices tend to move inversely to the U.S. currency.

(Reporting by Bozorgmehr Sharafedin in London, additional reporting by Jessica Jaganathan in Singapore; editing by David Evans and John Stonestreet)

White House says U.S. communicating with Iran over detained Americans

Posted on Sun, Feb 21, 2021, 12:21pmSun, Feb 21, 2021, 12:48pm by Reuters

By Michael Martina

WASHINGTON (Reuters) – White House national security adviser Jake Sullivan said on Sunday the United States had begun to communicate with Iran over the country’s detention of American citizens, calling the matter a “complete and utter outrage”.

Iran has arrested dozens of dual nationals, including several Americans, in recent years, mostly on espionage charges. Rights activists accuse the country of trying to use the detentions to win concessions from other countries, though Tehran dismisses the charge.

Sullivan told CBS News’ “Face the Nation” that it was a “significant priority” of President Joe Biden’s administration to get those Americans “safely back home.”

“We have begun to communicate with the Iranians on this issue,” Sullivan said when asked if the administration had started hostage negotiations with Iran.

“We will not accept a long term proposition where they continue to hold Americans in an unjust and unlawful manner,” he said, calling it a “humanitarian catastrophe”.

Sullivan added that Biden was “determined” to prevent Iran from getting a nuclear weapon, and that diplomacy was the best way to do that.

The United States said last week it was ready to talk to Iran about both nations returning to a 2015 accord abandoned by the Trump administration that aimed to prevent Tehran from acquiring nuclear weapons while lifting most international sanctions.

“Iran has not yet responded,” Sullivan said.

The two countries have been at odds over who should take the first step to revive the deal. Iran’s Foreign Ministry reiterated earlier on Sunday that the United States will not be able to rejoin the nuclear pact before it lifts sanctions. Washington says Tehran must first return to compliance.

Sullivan also told CBS that the United States will respond to the SolarWinds hack that hit several government agencies last year in “weeks, not months,” as the United States investigates the suspected Russian cyberattack.

He said the response will include a mix of tools seen and unseen, and it will not simply consist of sanctions.

“We will ensure that Russia understands where the United States draws the line on this kind of activity,” Sullivan said.

(Reporting by Michael Martina and Chris Sanders; Editing by Lisa Shumaker and Daniel Wallis)

Croatia has shown interest in F-35 jets – Lockheed executive

Posted on Fri, Feb 19, 2021, 4:39pmFri, Feb 19, 2021, 4:54pm by Reuters

By Mike Stone

WASHINGTON (Reuters) – Lockheed Martin co, the United States’ largest weapons maker, has fielded interest from Croatia regarding the purchase of stealthy F-35 jets, a Lockheed executive said on Friday.

Greg Ulmer, the executive vice president of Lockheed’s Aeronautics unit, told reporters, “they’ve shown interest” in buying the jets, which are a big part of Lockheed’s revenue.

A representative from the Embassy of the Republic of Croatia in Washington said “we are evaluating an offer of the new U.S. F-16 Block 70/72 aircraft, together with some other responses to our tender for a multi-role fighter aircraft, new or used,” but did not address the F-35.

Croatia is evaluating U.S., French and Swedish offers for fighter jets as it looks to modernize its air force, which now flies Russian-made MiG-21 jets dating from its past within the former Yugoslavia.

Croatia wanted to buy 12 used F-16 fighter jets from Israel, but it fell through after Israel said https://www.reuters.com/article/us-croatia-israel-military/israel-says-u-s-blocks-its-sale-of-fighter-jets-to-croatia-idUSKCN1P42MN in 2019 it could not get approval from the United States for the sale.

Other international customers for the fifth-generation F-35 include Canada, Finland, and Switzerland, which are running competitions for a future jet purchase. Additional customer prospects for Lockheed’s F-35 include Greece, Spain, Eastern European and Middle Eastern countries, Ulmer said in a media conference call.

Lockheed has also seen international interest for as many as 300 of its fourth-generation F-16 fighter jets on top of the current production backlog of 128 jets, Ulmer said.

(Reporting by Mike Stone in Washington, D.C.; Editing by Dan Grebler and David Gregorio)

Oil extends losses as Texas prepares to ramp up output after freeze

Posted on Fri, Feb 19, 2021, 3:06pmFri, Feb 19, 2021, 3:09pm by Reuters

By Devika Krishna Kumar

NEW YORK (Reuters) – Oil prices fell for a second day on Friday, retreating further from recent highs, as Texas energy companies began preparations to restart oil and gas fields shuttered by freezing weather and power outages.

Brent crude futures ended the session down $1.02, or 1.6%, at $62.91 a barrel while U.S. West Texas Intermediate (WTI) crude fell $1.28, or 2.1%, to settle at $59.24.

For the week, Brent gained about 0.5% while WTI fell about 0.7%.

This week, both benchmarks had climbed to the highest in more than a year.

“Price pullback thus far appears corrective and is slight within the context of this month’s major upside price acceleration,” said Jim Ritterbusch, president of Ritterbusch and Associates.

Unusually cold weather in Texas and the Plains states curtailed up to 4 million barrels per day (bpd) of crude production and 21 billion cubic feet of natural gas, analysts estimated.

U.S. energy firms this week cut the number of oil rigs operating for the first time since November, according to Baker Hughes data.

Texas refiners halted about a fifth of the nation’s oil processing amid power outages and severe cold.

Companies were expected to prepare for production restarts on Friday as electric power and water services slowly resume, sources said.

“While much of the selling relates to a gradual resumption of power in the Gulf coast region ahead of a significant temperature warmup, the magnitude of this week’s loss of supply may require further discounting given much uncertainty regarding the extent and possible duration of lost output,” Ritterbusch said.

Oil prices fell despite a surprise drop in U.S. crude stockpiles last week, before the big freeze hit. Inventories fell 7.3 million barrels to 461.8 million barrels, their lowest since March, the Energy Information Administration reported on Thursday. [EIA/S]

“Vaccines and the impressive rollouts we’ve seen have delivered strong gains, as have the efforts of OPEC+ – Saudi Arabia, in particular – and the big freeze in Texas, which gave oil prices one final kick this week,” Craig Erlam, senior market analyst at OANDA, said.

“With so many bullish factors now priced in, it seems we’re seeing some of these positions being unwound.”

The United States on Thursday said it was ready to talk to Iran about returning to a 2015 agreement that aimed to prevent Tehran from acquiring nuclear weapons. Still, analysts did not expect near-term reversal of sanctions on Iran that were imposed by the previous U.S. administration.

“This breakthrough increases the probability that we may see Iran returning to the oil market soon, although there is much to be discussed and a new deal will not be a carbon-copy of the 2015 nuclear deal,” said StoneX analyst Kevin Solomon.

(Additional reporting by Ahmad Ghaddar in London and Roslan Khasawneh in Singapore and Sonali Paul in Melbourne; Editing by Marguerita Choy, David Gregorio and Nick Macfie)

Toppy stock markets spark more “bubble” chatter

Posted on Fri, Feb 19, 2021, 9:18amFri, Feb 19, 2021, 9:24am by Reuters

By Thyagaraju Adinarayan and Aaron Saldanha

LONDON (Reuters) – A strong start for world equities in 2021 after the fastest bear-to-bull market switch last year has prompted market mavens to flag worries about pricey assets, with BofA calling it the “mother-of-all asset bubbles”.

The torrent of cash sloshing around world markets due to the unprecedented stimulus measures in place to fuel economies coming out of the pandemic-led recession has fed into the euphoric rush to equities, particularly Big Tech.

The U.S. Federal Reserve for instance has been purchasing bonds at a record pace, doubling its balance sheet to nearly $8 trillion in less than a year. During the same period, the five biggest tech stocks have seen their market value double.

As financial assets worth $1.1 billion are gobbled up by global central banks every hour, there is irrational exuberance on Wall Street, according to BofA.

Goldman Sachs’ Chief Executive David Solomon and strategists at some major investment banks have since January been warning about stock market volatility, particularly in the immediate future.

Most traditional market-top signals have been flashing amber – just as they did before the bursting of the dotcom bubble two decades ago. But what’s different this time is that interest rates look firmly stapled to the floor for years to come.

Ten-year yields on bonds of G7 countries are hovering near record lows, lending credence to “bubble” naysayers and captured in the hefty ‘equity risk premium’ (ERP) relative to historical averages.

“You’re practically ‘forced’ to move into riskier assets,” said Jeroen Blokland, a portfolio manager at Robeco, adding that outside the United States, things look even less bubbly.

The benchmark U.S. S&P 500 is now the most expensive developed market index based on the price-to-earnings ratio, trading at levels last seen during the dotcom bubble of the late 1990s.

Though Blokland sees rising odds that markets globally end up in a bubble, he said the upcoming cash injections and fiscal spending could further support asset prices.

Some data points below signal higher odds of a bubble:

1/ PARTYING LIKE IT’S 1999

Sitting at 22-times 12-month forward earnings, the S&P 500 is trading well above its long-term average of just 16x. Other major indexes are also trading above long-term averages, but are still far from S&P’s extreme levels.

(Graphic: Global stock valuations surge well above long term averages: https://fingfx.thomsonreuters.com/gfx/buzz/yzdvxwaonpx/Pasted%20image%201613736119174.png)

2/ BURSTING CALLS, FALLING PUTS

The frenzy is also visible in options markets. The CBOE put-to-call ratio has been pinned at near 20-year lows for eight months now, at levels last seen just before the dotcom bubble burst in 2000. Put options confer the right to sell at a pre-agreed price and calls allow holders to buy.

(Graphic: Put-to-call ratio pinned at 20-year lows for months now: https://fingfx.thomsonreuters.com/gfx/buzz/jznpnojexvl/Pasted%20image%201613736649173.png)

3/ LAST CHANCE TO BUY?

Super-low bond yields leave equities attractive for investors navigating between the two asset classes, and that’s captured by the still hefty ERP relative to historical averages.

(Graphic: Table on Equity Risk Premium for G7 and China: https://fingfx.thomsonreuters.com/gfx/mkt/jznvnojdxpl/Table%20on%20Equity%20Risk%20Premium%20for%20G7%20and%20China.png)

4/ BUBBLY BIG TECH

While the reflation trade drives gains in small cap stocks, which fell heavily last year, interest in tech stocks hasn’t abated. That’s built a concentration risk in markets as the sector expands to make up a fifth of all global stocks – the highest since the dotcom bubble of the late 1990s.

(Graphic:Concentration risk in world stocks? Tech dominates: https://fingfx.thomsonreuters.com/gfx/buzz/jbyvrdxjnve/Pasted%20image%201613737694920.png)

5/ TAKE THE M2, ENJOY THE BUY RIDE

Another indicator is the extent of central bank liquidity support in the system. M2, a measure of money supply that takes into account cash and deposits, jumped sharply last year spawning bubbles in many corners of the markets from bitcoin to high-flying tech stocks.

(Graphic: nasdaq and US money supply: https://fingfx.thomsonreuters.com/gfx/mkt/dgkplzjwmpb/nasdaq%20and%20US%20money%20supply.JPG)

(Reporting by Thyagaraju Adinarayan and Aaron Saldanha; Editing by Vidya Ranganathan and Susan Fenton)

Take Five: Bond yield rise might be the real thing

Posted on Fri, Feb 19, 2021, 8:24amFri, Feb 19, 2021, 8:38am by Reuters

LONDON (Reuters) –

1/ YIELD JOLT

Higher U.S. Treasury yields have so far done little more than jolt equity markets off record highs. That will change if “real” yields — adjusted for inflation — take off.

It was last year’s real yield plunge which sent cash flooding into stocks; while expensive, they looked like a good deal compared with real yields of minus 1%.

But big-time government spending plans and prospects of economic reopening have lifted real 30-year Treasury yields to eight-month highs, just 11 basis points shy of 0%. Ten-year real yields are at five-week peaks.

There’s little consensus on when yields will become a problem for equities. But some assets are already seeing an impact — gold for instance struggles to compete with income-bearing investments when yields rise and is down 6% this year.

Graphic: It’s getting real – https://graphics.reuters.com/USA-BONDS/REAL/rlgpdejxyvo/chart.png

2/KIWI TAPER

The Reserve Bank of New Zealand’s meeting on Wednesday might tell us if the first country to reduce COVID-19 cases almost completely will also be the first to consider cutting back monetary policy support.

A lot has changed since the RBNZ’s November policy statement. The kiwi economy is beating forecasts and markets are no longer pricing in negative rates.

Governor Adrian Orr will revise up forecasts for growth and inflation but he faces a communications challenge: acknowledging improvement without spooking markets.

A rate rise may be years away but the prospect of a stimulus slowdown is on investors’ minds — 10-year sovereign bond yields are up 50 bps this year.

Graphic: New Zealand’s economy bounces back – https://fingfx.thomsonreuters.com/gfx/mkt/oakveredjpr/Pasted%20image%201613729699719.png

3/DEBT, DEFAULTS, DEBATES

Debt relief for low-income economies will be high on the agenda of G20 finance officials when they meet on Feb. 26-27.

They will debate the idea of extending IMF funding and the initiative allowing the poorest countries a six-month suspension on some debt payments, as well as more comprehensive relief. There are also calls for the G20 to lead a global COVID-19 immunisation plan.

It will be the first G20 meeting since Joe Biden took over as U.S. president, so the tone may be very different from the Trump years which saw many global alliances fractured. That could be a positive shift at a time when countries are struggling to ensure economic recovery stays on course.

Graphic: Debt-to-GDP ratios of DSSI countries with sovereign bonds – https://graphics.reuters.com/AFRICA-DEBT/qzjvqmlllvx/chart.png

4/TURNING 140

The British pound has become an unexpected currency market poster child for the COVID-19 recovery theme.

It has marked a major milestone in hitting $1.40, a near three-year high. But just two months ago it was mired in Brexit risks and the worst economic outcome of any major industrialised country.

Since mid-December, sterling has strengthened by around 5.5% against the dollar and by 6.5% versus the euro as Britain’s vaccination programme got off to a flying start. Hopes of an earlier end to lockdowns have lifted it 2% against the dollar in February.

Some consider the pound expensive. A Reuters poll predicted the U.S. economy would recover to pre-pandemic levels within a year but saw Britain taking twice that time.

There’s also the question of whether the Bank of England might take interest rates negative. Money markets expect it will, though not before the second half of 2022.

Graphic: GBP top FX performer – https://fingfx.thomsonreuters.com/gfx/mkt/jbyprdmwnpe/GBP%20top%20FX%20performer.JPG

5/SPAC-TACULAR SPAC-TION, SPAC-KMAN.

Journalists are rummaging through their pun drawers for ways to describe the deluge of special purpose acquisition companies (SPACs) that have hit markets over the past year.

SPACs are essentially blank cheque companies which raise money in an initial public offering with the aim of buying a private firm and taking it public.

Already this year, 144 SPACs have raised $45.7 billion, data from SPAC Research shows, often backed by high-profile investors and celebrities.

The trend is not without bad press. Investment banks managing the deals earn fees by finding the SPAC a company to acquire — within two years. That raises fears of insufficient due-diligence.

While primarily a U.S. phenomenon, SPACs are sprouting in Europe too. Ex-UniCredit CEO Jean-Pierre Mustier, and German tycoons Christian Angermayer and Klaus Hommels have announced SPACs.

SPAC launches are plentiful but how actual acquisitions — or “deSPACing” — develop will show whether the trend lasts.

Graphic: SPAC boom – https://fingfx.thomsonreuters.com/gfx/mkt/xegvbwlnxpq/spac.PNG

(Reporting by Saqib Iqbal Ahmed in New York and Tom Westbrook in Singapore; Karin Strohecker, Saikat Chatterjee and Abhinav Ramranayan in London; compiled by Sujata Rao; editing by Susan Fenton)

Oil falls after surging past $65 on Texas freeze

Posted on Thu, Feb 18, 2021, 3:34pmThu, Feb 18, 2021, 3:38pm by Reuters

By Stephanie Kelly

NEW YORK (Reuters) – Oil prices fell on Thursday despite a sharp drop in U.S. crude inventories, as market participants took profits following days of buying spurred by a cold snap in the largest U.S. energy-producing state.

Brent crude fell 41 cents, or 0.6%, to settle at $63.93 a barrel. During the session it rose as high as $65.52, its highest since January 2020.

U.S. West Texas Intermediate (WTI) crude futures fell 62 cents, or 1%, to settle at $60.52 a barrel, after earlier reaching $62.26, the highest since January 2020.

Brent had gained for four straight sessions before Thursday, while WTI had risen for three.

“The market probably got a little bit ahead of itself,” said Phil Flynn, a senior analyst at Price Futures Group in Chicago. “But make no mistake, this selloff in oil doesn’t solve the problems. The problems are going to persist.”

Though some Texas households had power restored on Thursday, the state entered its sixth day of a cold freeze. It has grappled with refining outages and oil and gas shut-ins that rippled beyond its border into Mexico.

The weather has shut in about one-fifth of the nation’s refining capacity and closed oil and natural gas production across the state.

“The temporary outage will help to accelerate U.S. oil inventories down towards the five-year average quicker than expected,” SEB chief commodities analyst Bjarne Schieldrop said.

Prices dropped despite a decrease in U.S. oil inventories. Crude stockpiles fell by 7.3 million barrels in the week to Feb. 12, the Energy Information Administration said on Thursday, compared with analysts’ expectations for an decrease of 2.4 million barrels.

Crude exports rose to 3.9 million barrels per day, the highest since March, EIA said.

“The big nugget was the big jump in exports of crude oil,” said John Kilduff, partner at Again Capital in New York. “We’ll have to see what happens with that next week weather in Texas, but I have been looking for a pickup there for a while.”

Oil’s rally in recent months has also been supported by a tightening of global supplies, due largely to production cuts from the Organization of the Petroleum Exporting Countries (OPEC) and allied producers in the OPEC+ grouping, which includes Russia.

OPEC+ sources told Reuters the group’s producers are likely to ease curbs on supply after April given the recovery in prices.

(Additional reporting by Yuka Obayashi in Tokyo; editing by Emelia Sithole-Matarise, Steve Orlofsky, David Gregorio and Jonathan Oatis)

Cloudy outlook for stalled jet fuel demand recovery

Posted on Wed, Feb 17, 2021, 11:15pmWed, Feb 17, 2021, 11:24pm by Reuters

By Bozorgmehr Sharafedin, Koustav Samanta and Stephanie Kelly

LONDON/SINGAPORE/NEW YORK (Reuters) – Hopes of a speedy aviation recovery this year have been knocked back by global travel restrictions after the emergence of new coronavirus variants and a slower than expected vaccination rollout, dimming the outlook for jet fuel demand and oil prices.

Jet fuel suffered the biggest demand decline among oil products as aviation activity collapsed last year and is seen by market participants as one of the main factors influencing 2021 oil demand growth, given the lingering uncertainties.

Almost 10% of total oil demand in OECD countries was for jet fuel in 2019, dropping to 6% in 2020, International Energy Agency (IEA) data shows. By comparison, gasoline demand remained around 30% in both 2019 and 2020.

Goldman Sachs last month lowered its forecast for first-quarter global oil demand by 700,000 barrels per day (bpd), or 0.7% of total consumption, mainly because of renewed travel restrictions.

EMPTY SKIES

Analysts and traders had expected a swift recovery for jet fuel consumption on the back of a bounce in leisure travel. However, vaccination programmes have been delayed and the skies remain empty, with thousands of planes grounded by the pandemic and many airlines pushed to the verge of bankruptcy.

“For the short-term, there is still no sign of recovery for jet fuel,” said a senior jet fuel trader associated with a Japanese refiner.

Most traders and analysts now expect the situation to improve only in the second half of the year as vaccine rollouts continue and domestic flights pick up. A recovery in international flights, however, is expected to take longer.

Long-haul flights burn an average of about 35 times more fuel than regional flights, the IEA says, and are responsible for more than a third of total fuel used by the aviation sector.

Jet fuel demand will remain at about 5.4 and 5.7 million bpd in the first and second quarters respectively, research consultancy Energy Aspects projects, far below average global consumption of 7.9 million bpd in 2019.

MARGINS AND INVENTORIES

In Asia, jet fuel cracks, or margins, have gained in recent weeks but remain at record lows for the time of year.

“Refiners with substantial domestic markets will try to run just enough to produce jet fuel to meet domestic demand as the international market is still weak,” one senior jet fuel trader said.

In Europe, jet fuel cracks continue to rise, mainly owing to expected heavy refinery maintenance work rather than strong demand.

Jet fuel held in independent storage in the Amsterdam-Rotterdam-Antwerp (ARA) hub rose in the week to Thursday to 983,000 tonnes, almost 110% higher than the same period last year.

Global jet fuel floating storage, meanwhile, rose to about 4 million barrels in early February, having dropped from a peak of about 20 million barrels in August 2020 to almost 2.5 million barrels last month, according to data intelligence firm Kpler.

(Graphic: Jet fuel floating storage, https://graphics.reuters.com/GLOBAL-OIL/xklpylwjevg/chart.png)

The emergence of more contagious variants of the virus has severely affected intercontinental travel, with recovery expected to be arduous, which analysts and traders say could be most painful for Middle East refiners that are heavily reliant on such flights.

With new refining capacity coming online in the region this year, the refiners have no option but to export more jet fuel to already oversupplied markets.

In the United States, airline passenger volumes are still down 65% from pre-pandemic levels, said U.S. industry group Airlines for America.

American Airlines said in its fourth-quarter report that it is looking at 2021 as “a year of recovery” but could not predict exactly when passenger demand will return.

SECOND-HALF UPTURN?

Analysts at Wood Mackenzie have their sights set on the back end of 2021 for the jet fuel recovery to kick in.

“We expect to see the critical mass vaccinated by the end of the third quarter and beginning of the fourth quarter, and that’s when you will see the pace of jet fuel demand pick up,” said Suzanne Danforth, Wood Mackenzie’s Americas markets lead for the oils and refining markets.

U.S. refiners raised their jet fuel yields – the percentage of finished product from input of crude oil – towards the end of 2020 and are expected to increase them throughout the year, Danforth said.

Pre-pandemic yields of about 10.5% fell to 6.8% last year, she added.

But there’s no getting away from the uncertainty that clouds the market. U.S. Energy Information Administration data showed that U.S. jet fuel demand hit nearly 1.5 million bpd in the week to Jan. 8, its highest since March last year, only to drop back to 1.3 million bpd in the week to Feb. 5.

(Graphic: Cloudy skies ahead for jet fuel demand as travel restrictions tighten, https://fingfx.thomsonreuters.com/gfx/ce/jznpnmyzwvl/FlightRecoveryFeb2021.png)

(Reporting by Bozorgmehr Sharafedin in London, Koustav Samanta in Singapore and Stephanie Kelly in New York; Editing by David Goodman)