Kerosene-type jet fuel stocks
In its weekly petroleum status report released on December 2, 2015, the EIA (U.S. Energy Information Administration) reported that US kerosene-type jet fuel inventories were 38.1 MMbbls (million barrels) for the week ending November 27, 2015.
The kerosene-type jet fuel inventories rose by 0.8 MMbbls for the week ending November 27—compared to the previous week ending on November 20. As of the week ending November 27, the current jet fuel inventories were 2.4 MMbbls or 6.6% more than inventories in the same period last year.
Production and imports
The EIA’s weekly petroleum status report stated that jet fuel production and imports were 1.8 MMbpd (million barrels per day) and 48,000 bpd (barrels per day) for the week ending November 27, 2015. This indicates that jet fuel production and imports fell by 113,000 bpd and 103,000 bpd, respectively.
Kerosene-type jet fuel spot prices
The US Gulf Coast kerosene-type jet fuel spot prices were at $1.26 per gallon as of the week ending November 27. The price was $0.01 per gallon lower than the prices in the week ending November 20.
What does this mean?
The kerosene-type jet fuel inventories rose for the week ending November 27 despite a fall in the production and imports. This represents weaker demand for the jet fuel. The jet fuel demand mainly fell due to the winter season. During the winter, many tourists or frequent travelers don’t travel much to their desired destinations compared to the summer season. So, there’s less demand from the aviation industry. This led to a fall in the demand for kerosene-type jet fuel. It resulted in lower prices.
The fall in the kerosene-type jet fuel prices will result in less spending for aviation customers only if the airline operators pass along the benefit. The fall in the prices will also benefit airline operators because jet fuel is a major cost in the airline industry. So, a fall in the prices reduces the operational costs. This can increase airline operators’ profitability like United (UAL), American (AAL), Southwest (LUV), and Delta (DAL).
In contrast, lower jet fuel prices decrease refineries’ revenue. They sell their produced products at lower prices than before. This would impact refineries’ profitability like Tesoro (TSO), Valero Energy (VLO), and Phillips 66 (PSX).
Valero Energy accounts for 6.7% of the iShares U.S. Oil & Gas Exploration & Production ETF (IEO).