The Caltex Australia Limited (ASX: CTX) share price has plummeted this morning, dropping more than 18% just after market open before regaining some ground to be trading for $18.91 at the time of writing, a drop of 7.76%.
The share price dive follows a market update on the impact of declining jet fuel demand caused by the escalating coronavirus pandemic.
Crisis causes dive in demand for jet fuel
Caltex has announced today that it estimates that jet fuel demand, in light of the coronavirus crisis and government measures to curb the spread of the virus, is now likely to be around 80% to 90% lower while flight cancellations are in place.
Caltex's management team will now analyse the impact that this fuel demand reduction will have on its wider business.
There is no doubt that the impact will be deep. On 17 March, Qantas Airways Limited (ASX: QAN) announced a reduction in its international capacity by 90% and its domestic capacity by 60%, and on 19 March it announced that more than 150 aircraft will be temporarily grounded.
In addition, on 18 March, Virgin Australia Holdings Ltd (ASX: VAH) announced it was suspending all international flights and cutting domestic capacity by 50% in response to the coronavirus outbreak.
However, in the past 4 days, the crisis has escalated quite significantly in Australia. Our borders have been effectively closed apart from residents returning home, and after that international flights are likely to be scaled down further. In the past 48 hours, we have seen major government announcements with regards to domestic travel, with all non-essential domestic travel now coming to a halt. This is likely to see further cuts to Qantas' and Virgin's domestic flight schedule and this will have further impact on demand for Caltex's jet fuel demand over the months ahead.
Impact on Australian gasoline and diesel markets
Caltex also announced today that it will closely monitor the impact on its Australian gasoline and diesel markets in light of the increasing restrictions on travel movements in Australia.
Up until the past week, the impact on consumer travel has been minimal, however that has all changed over the past few days. The government is now advising against all non-essential travel of any kind, including vacations. Also, day by day, the number of Australian workers deciding to work from home increases, and more children are staying home from schools. Victorian schools, for example, are to close down from Tuesday.
This will no doubt have further impact on Caltex's gasoline and fuel demand.
