Will Falling Jet Fuel Inventories Boost Prices?



Kerosene-type jet fuel inventories

In its weekly Petroleum Status Report released on November 12, 2015, the EIA (U.S. Energy Information Administration) stated that jet fuel inventories are 36.8 MMbbls (million barrels) for the week ended November 6. This shows that jet fuel inventories fell by 1.2 MMbbls for the week ended November 6 compared to the previous week ended November 2.

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Kerosene-type jet fuel production and imports

The EIA’s report also stated that jet fuel production and imports are 1,658 Tbpd (thousand barrels per day) and 87 Tbpd for the week ended November 6, 2015. This indicates that jet fuel production rose by 78,000 barrels per day and that jet fuel imports rose by 32,000 barrels per day for the week ended November 6, 2015.

What’s the impact on jet fuel prices?

According to the above data, we can see that jet fuel inventories fell by 1.2 MMbbls at the same time production and imports rose by 1,745 Tbpd, which indicates demand for jet fuel increased for the week ended November 6.

Jet fuel inventories have a great impact on jet fuel prices. When jet fuel inventories fall, it’s bullish for prices. It’s bearish for prices when inventories increase. Jet fuel prices decide consumer spending because jet fuel prices are directly related to airfares. Jet fuel price changes also follow crude oil price trends. So it’s important for energy investors and frequent travelers to watch jet fuel prices.

An increase in demand and a fall in inventory levels are usually bullish for jet fuel prices. It’s also a positive indication for refiners, because higher prices increase revenues of refiners such as Phillips 66 (PSX), Valero Energy (VLO), HollyFrontier (HFC), Western Refining (WNR), Marathon Petroleum (MPC), and Tesoro (TSO).

Tesoro accounts for 1.7% of the SPDR S&P Oil & Gas Exploration & Production ETF (XOP). Phillips 66 (PSX) accounts for 2.9% of the iShares US Energy ETF (IYE).

On the other hand, higher jet fuel prices increase operational costs for aviation companies. That’s negative for airline operators such as Delta Air Lines (DAL), American Airlines Group (AAL), Southwest Airlines (LUV), United Continental Holdings (UAL), and JetBlue Airways (JBLU).


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