Neil Bradford, CEO of General Index, hosted the company’s first jet fuel webinar with Saket Vemprala, who oversees GX’s European refined products prices, and David Elward, who oversees its jet fuel prices. The session was recorded on September 21, 2021, the day after the US said it would reopen to vaccinated travelers from the EU and UK. It covered GX’s European jet fuel benchmarks, a review of the market over the previous year, and a proposal for a sustainable aviation fuel (SAF) index.
GX jet fuel benchmarks
Saket said General Index launched gasoline prices in April 2020 and jet fuel in September 2020. LPG followed, and a spot Brent assessment was in development at the time of recording. In markets where liquidity is thin, General Index may design new methodologies. In established markets such as European jet fuel, it uses the methodology the market already accepts. Each index has a fact sheet that sets out its parameters and shows in a diagram how the price is calculated. General Index is authorized by the UK Financial Conduct Authority and follows the IOSCO principles for price reporting agencies.
For jet fuel cargoes CIF Northwest Europe and barges FOB Amsterdam-Rotterdam-Antwerp (ARA), General Index uses a 4:30 pm market-on-close assessment. Inputs include bids, offers, deals, swaps values, and ICE gasoil futures. Prices are usually published within 60 to 90 minutes of the close, and often within about 45 minutes. Saket said market participants comparing the data had found GX cargo and barge prices within 0% to 0.2% of the incumbent provider’s. General Index also publishes forward curves and a daily jet fuel report showing:
- differentials to ICE gasoil
- the gasoil forward curve structure
- the barge-cargo spread
Saket described a four-stage path to adoption, from product development and market support to early adoption and full adoption. He placed jet fuel between the second and third stages. Some companies were looking at using GX prices for internal functions, some airlines were considering GX as a pricing option in fuel tenders, and talks were under way on a first trade. In gasoline, which is further along, a 2,000 mt Eurobob barge traded between BP and Varo in April 2021 on a GX price basis.
A year in the jet fuel market
David said that when General Index launched its jet fuel indexes on September 2, 2020, Brent was about $48 per barrel. Jet fuel cargoes in Northwest Europe and barges in ARA were both around $330/mt. The recovery in prices from November 2020 was driven by strong US gasoline demand and OPEC+ output restraint. Jet fuel differentials to ICE low sulfur gasoil were at deep discounts in September 2020 and only just starting to strengthen.
European air traffic fell by almost 90% in April 2020, and jet fuel demand fell by more than 70%. Traffic recovered to about half of 2019 levels in summer 2020 but fell again during the second and third waves of the pandemic, which lasted until May 2021. By summer 2021, traffic was within about 30% of 2019 levels. David said the next stage of recovery depended on long-haul travel, making the US decision to admit vaccinated travelers from November an important step.
In 2020, a wide contango made it profitable to store jet fuel at sea. Jet fuel held on tankers off Northwest Europe peaked at about 1.9 million to 2 million mt at the end of July 2020 and did not fully clear until early 2021. By the time of recording, demand in Northwest Europe was still about 40% below pre-pandemic levels, but supply had adjusted. According to OilX, the regional market was at its shortest in recent years in September 2021, and the forward curve had moved into backwardation.
A proposed SAF index
David said climate commitments ahead of COP26 had increased attention on SAF. The aviation industry has a net-zero target for 2050, and the European Commission’s Fit for 55 proposals include a SAF blending mandate from 2025. The European SAF spot market was still small, with few suppliers, and most deals were agreed privately. David said the deals that did happen were generally priced as a differential to the jet fuel cargo benchmark for Northwest Europe.
Under the proposed model, buyers and sellers would submit SAF deals to General Index in confidence. General Index would use the data only to:
- verify each deal with the counterparty
- calculate the index
- meet regulatory audit requirements
Deal details would not be shared with other market participants. The index would be published as a differential to GX’s Northwest Europe jet cargo price and as an outright price.
Several questions remained open, including whether the index should reflect delivery to airports or FOB ARA loading. Another was whether it should cover neat SAF, blended fuel, or co-processed fuel. David invited companies to join bilateral discussions on the methodology and to start internal conversations about contributing trade data.
Supporting GX jet fuel prices
David said companies could receive GX jet fuel data daily, including over ICE Chat. Exchanges were ready to list GX-settled jet fuel derivatives once the market showed demand. Companies could also use GX prices for internal functions such as pre-trade analysis, mark-to-market, and transfer pricing. They could also trade spot cargoes on GX prices or include GX as a pricing option in term contracts. General Index would provide its data free of charge for pilot trades and term deals.
Audience questions
On the outlook, David said the return of transatlantic travel would add jet fuel demand and was likely to support prices.
On SAF outside Europe, David said the US was further ahead in SAF production, and significant new production capacity had been announced in Singapore. Saket said General Index planned to launch fossil jet fuel prices for the US Gulf Coast and Singapore over the following two quarters. He added that methodologies in those regions would be shaped by market feedback.
Asked whether General Index would launch a trading screen, Saket said the aim was to keep existing trading and reporting methods in place. If a screen became necessary for wider adoption, General Index had partners who could build one.
Watch the full webinar below.
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