20 Nov

Why Jet Fuel Prices and Inventories Moved in the Same Direction

WRITTEN BY Manu Milan

Kerosene-type jet fuel inventories

In its weekly Petroleum Status Report released on November 18, 2015, the EIA[1. U.S. Energy Information Administration] stated that jet fuel inventories were 36.6 MMbbls (million barrels) for the week ended November 13, 2015. This shows that jet fuel inventories fell by 0.2 MMbbls for the week ended November 13 compared to the previous week that ended on November 6. Also, jet fuel inventories in the week ended November 13 were 1.7 MMbbls more than inventories in the corresponding previous year.

Why Jet Fuel Prices and Inventories Moved in the Same Direction

Kerosene-type jet fuel prices

The spot prices of US Gulf Coast kerosene-type jet fuel were $1.28 per gallon as of the week ended November 13, or $0.23 per gallon lower than the prices of the week ended November 16.

Kerosene-type jet fuel production and imports

The EIA’s weekly petroleum status report stated that jet fuel production and imports were 1,590 Mbpd (thousand barrels per day) and 56 Mbpd for the week ended November 13, 2015. This indicates that jet fuel production and imports fell by 67,000 barrels per day and 53,000 barrels per day, respectively.

What does this mean?

According to the EIA, jet fuel accounted for 12% of world transportation in the year 2012. As jet fuel prices influence traveler spending as well as the revenues of refineries. So, jet fuel prices are very important to watch for refineries as well as investors in the energy.

Jet fuel production, imports, and prices fell in the last week, ended on November 13, indicating that jet fuel demand fell marginally in the last week. However, even though the fall in jet fuel inventories can be observed from the above data, a slight fall of 0.2 MMbbls hasn’t shown much impact on the prices.

Fall in demand and prices are usually bearish for jet fuel prices. That’s also a negative indication for refiners, because of lower prices, revenues of refiners such as Phillips 66 (PSX), Valero Energy (VLO), Holly Frontier (HFC), Western Refining (WNR), Marathon Petroleum (MPC), and Tesoro (TSO) could come down.

Phillips 66 (PSX) account for 1.6% of the SPDR S&P Oil & Gas Exploration & Production ETF (XOP). Valero Energy (VLO) accounts for 2.4% of the iShares US Energy ETF (IYE).

On the other hand, lower jet fuel prices lower the operational costs of aviation companies. That’s a positive sign for airline operators such as JetBlue Airways (JBLU), Southwest Airlines (LUV), and United Continental (UAL). Lower prices also benefit travelers due to low air fares.

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