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2 Feb 28 2014 @ 11:49am by Matt Smith in Crude Oil

A Bumpy Ride For Jet Fuel

2014 thus far has been more turbulent than usual for the US crude complex, as wickedly wintry weather has shaken up both supply and demand for the products like a snow globe (probably a bad turn of phrase). Just as gasoline demand has hit the brakes and heating oil demand has been simmering, the jet fuel market has experienced a bumpy ride.

As EIA data show below, jet fuel demand in the US has dropped off even more strongly than usual after such an inclement start to the year. Some 77,000 flights have been canceled for nearly 6 million passengers thus far (with more to come, h/t Polar Pig Part III) . Meanwhile, the bitterly cold conditions are causing logistical problems such as tanker valves freezing at airports.

Although we have seen pockets of demand emerging from unexpected places (such as utilities in the Northeast burning jet fuel in a last-ditch effort to meet spiking power generation demand), ultimately the drop in demand has yielded a corresponding rebound in inventories from their lowest level since late 2008:

But the reason we have seen inventories trending lower in the last few years has as much (well, more) to do with rising exports as it does rising demand.  Just as we see distillate fuel oil and natural gas liquids leaving the country at a record clip,  we are seeing a similar trend in place for jet fuel exports:

If we zoom in to focus on the East Coast (aka PADD1), we can see that the region has been in the throes of refinery maintenance season.  But although a number of refineries remain in turnaround, Delta Air Lines’ Trainer facility is expected to return from maintenance shortly, with maximized production of jet fuel (at the expense of gasoline production). Refinery utilization for the area has already increased to over 77% from the low of 70% back in mid-January.

The final piece of the jigsaw is imports. ClipperData provides über-timely and über-granular data on fuel imports (think: EIA on steroids – tracking grades, importers, terminal data, etc). A glimpse under the hood at their proprietary data confirms an emerging trend: while imports are lower, they are above the levels of those seen at the tail-end of last year. Add this to improving economics to attract cargoes from Europe to the US, and a supportive picture should remain intact.

So where does this leave us? The combination of steady jet fuel imports, lower demand, and a rebound in in PADD1 refining points to a Goldilocks situation: heating oil demand is too hot right now, gasoline demand is cooling, while the jet fuel market looks just right.

2 Comments on this post:

  1. Mike Siebold says:

    Another favorable article. I miss your daily updates and humor. Hope all is well my friend.

  2. Matt Smith says:

    Thanks, Mike – we miss you too!

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