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Will Rising Jet Fuel Imports Hurt Domestic Refiners?

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Kerosene-type jet fuel inventories

In its Weekly Petroleum Status Report released on November 25, 2015, the EIA (U.S. Energy Information Administration) stated that jet fuel inventories were 37.2 MMbbls (million barrels) for the week ended November 20, 2015. This shows that jet fuel inventories rose by 0.7 MMbbls, or 1.8%, for the week ended November 20.

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Kerosene-type jet fuel production and imports

According to the EIA’s  Petroleum Status Report, jet fuel products supplied were 42 Mbpd (thousand barrels per day) more for the week ended November 20 than for the previous week ended November 13, 2015.

Jet fuel production and imports were 1,648 Mbpd and 151 Mbpd, respectively, for the week ended November 20, 2015. This indicates that jet fuel production rose by 58,000 bpd (barrels per day) and that jet fuel imports rose by 95,000 bpd for the week ended November 20.

Jet fuel imports were 104.3% higher in 2015 than they were in the same period last year, but jet fuel production was just 2.5% higher than it was in the same period last year.

What does this mean?

Jet fuel inventories rose last week due to a rise in production and imports. A rise in production is a good sign for US refineries. Increased imports are negative for domestic producers. Jet fuel inventories were below the lower part of their five-year average range. If production were to increase further, price cuts could result, which would be negative for oil producers.

From the above data, you can see that jet fuel imports rose more than 100% compared to the previous year. Such a rise can demotivate domestic refiners such as Phillips 66 (PSX), HollyFrontier (HFC), Western Refining (WNR), Marathon Petroleum (MPC), and Tesoro (TSO) due to falling revenues.

Some of the above-mentioned companies are components of the SPDR S&P Oil & Gas Exploration & Production ETF (XOP), the Energy Select Sector SPDR ETF (XLE), and the iShares US Energy ETF (IYE).

Lower jet fuel prices benefit airline operators such as Delta Air Lines (DAL), Southwest Airlines (LUV), and JetBlue Airways (JBLU), as they reduce operational costs.

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