The oil products markets globally are caught between a rock and a hard place as the impact of ultra-cheap oil, which should be a boon for refiners, is mitigated by record low prices for gasoline and jet fuel.
While major oil producers like Saudi Arabia vow to pump at record levels and offer hefty discounts on their barrels, refiners, in theory, should be producing at maximum capacity.
“The extent to which [refinery] runs increase will quickly become constrained as product cracks reach a ceiling due to high inventory levels and weak global demand,” consultancy Woodmac said.
Jet fuel is one of the markets hardest hit by the virus outbreak as more and more countries shut borders and travellers shun flying.
Before the outbreak, jet was seen as a key market for oil demand growth globally, with mega airports springing up across the world from Istanbul to China.
On March 16, British Airways owner International Consolidated Airlines Group said it would cut its flying capacity by at least 75 per cent in April and May.
Low-cost carrier Ryanair plans to ground most of its fleet in Europe over the next seven to 10 days and expects to cut seat capacity by 80pc for the next two months.
Consultancy Rystad Energy is expecting jet fuel demand to fall by 12pc globally or at least 800,000 barrels per day compared with last year.
“The annual estimates assume no additional lockdowns and fewer flight cancellations after the summer,” Rystad said.
Refiners will likely curtail jet fuel output in part by switching more processing capacity to diesel production, after the fuel's value versus diesel plunged following news of the ban.
In Europe, jet fuel cargo differentials to front-month diesel futures are at a record low.
As more and more cities and countries go into lockdown and people work from home, a negative impact on motor fuel demand is inevitable.
In Europe and Asia, profit margins for making gasoline at an oil refinery are negative, meaning that a refinery is losing money producing the fuel.
In the United States, the world's biggest consumer of the motor fuel, NYMEX RBOB Gasoline futures have tumbled to a record low of $0.6778/gallon.
With projections of leisure driving falling by 50pc, US fuel demand could drop roughly 2 million to 2.5m barrels per day. For 2020, that would cut gasoline demand by roughly 300,000 to 400,000 bpd, Rystad said.
Road fuel demand in China alone, for diesel and gasoline, was down 1.5 million bpd year-on-year in February, Rystad said. Demand there is not trickling up as more people return to work.
With the outlook for global economic growth looking gloomy, diesel, which is heavily used in industry, remains under pressure.
While margins in Europe are far outperforming gasoline and jet fuel, lockdowns in Italy and Spain have sapped demand there.
“The return of over 1 million bpd of the Middle East's refining capacity from maintenance over the coming months will add further downside pressure to middle distillate cracks,” Woodmac said.
The Mideast Gulf, which has some of the world's most sophisticated refineries, is a major diesel and jet fuel export region. Woodmac estimates that 6 million bpd in crude distillation capacity is offline globally, which is providing some support to refining margins.
Jet and diesel/gasoil imports into Italy between March 1 and March 16 stood at 140,000 bpd, according to preliminary data from oil analytics firm Vortexa, less than half the average for February.