Jet fuel demand seen falling 40% in Saudi Arabia this year

About 10.5 mil pilgrims visited holy sites last Islamic year

Saudi Arabia accounts for 20% of Middle East jet fuel demand

Dubai — Saudi Arabia’s plans to restrict the number of pilgrims during the annual Hajj pilgrimage to a few thousands will likely dent jet fuel demand in the Arab world’s biggest economy, which last year welcomed around 2 million during the season.

Saudi Arabia, home to Islam’s holiest sites in Mecca and Medina, will only allow individuals residing or already in the kingdom to participate in this year’s Hajj season — which begins in July — to contain the spread of the coronavirus among pilgrims.

In the last Islamic year that ended in August 2019, the kingdom hosted around 2 million Saudi and foreign pilgrims during Hajj, which takes place at the end of the Islamic year. Saudi Arabia also received in the last Islamic year 7.5 million Saudi and foreign pilgrims, who performed the mini pilgrimage or Umrah during that year.

“Jet fuel consumption typically increases by at least 30% month on month during the Hajj month in the past five years, but will unlikely occur in July this year due to the restricted Hajj measures,” said Zhuwei Wang, an analyst at S&P Global Platts Analytics.

Jet fuel demand in Saudi Arabia will likely decline by around 40% this year compared with 2019, accounting for around 20% of the jet fuel demand in the Middle East region, he added.

“Based on the number of travelers into KSA in the month of Hajj in 2019 and today’s cross-border travel restrictions, we estimate approximately a jet fuel demand impact of 130,000 bpd for the month Hajj is arranged,” according to analysts Simen Nut and Hansen Eliassen at Rystad.

Aviation losses

Saudi Arabia’s aviation sector was suffering even before the Hajj restrictions were announced this month.

Saudi Arabia’s aviation sector will lead the losses in the Middle East region this year, according to the International Air Transport Association, the body representing over 290 airlines.

The Middle East region’s aviation industry as a whole is forecast to post a $4.8 billion loss in 2020 due to coronavirus-related travel restrictions and lockdowns as passenger demand plunges 56%, according to IATA.

Saudi Arabia suspended most passenger flights in late March, except for cargo and repatriation flights. Saudi Arabia resumed domestic flights in June, but international flights remain on hold.

“Although the country is certainly not a large aviation hub like the UAE or Qatar, Saudi Arabia does have a sizable domestic market,” said Audrey Dubois-Hebert, a consultant with FGE Energy. “In this respect, we’ve already seen flights pick back up since restrictions were lifted in early June, even surpassing flight numbers out of the UAE/Qatar.”

Thirty million pilgrims

Before the coronavirus outbreak, Saudi Arabia had set a goal of attracting 30 million pilgrims under its Vision 2030, an economic road map for weaning itself off oil income by developing and supporting sectors such as tourism.

Religious tourism makes up the bulk of travel to Saudi Arabia, which had 13.6 million international tourist arrivals in 2019, according to the UN’s World Tourism Organization.

“It’s worth noting that while Hajj in itself only lasts a limited amount of time and, therefore, won’t have such a strong impact on aviation demand, a lack of religious tourism in general will curtail the recovery of Saudi’s jet fuel demand,” Dubois-Hebert added.

S & P GLOBAL