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Will Jet Fuel Inventories Continue Their Fall?

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Kerosene-type jet fuel inventories have fallen

In its weekly Petroleum Status Report released on January 27, 2016, the EIA (U.S. Energy Information Administration) stated that jet fuel inventories fell from 42.2 MMbbls (million barrels) to 41.8 MMbbls in the week ended January 22. Also, jet fuel inventories in the week ended January 22 were 14.4% higher than the inventories in the corresponding period of the previous year.

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Kerosene-type jet fuel prices

The spot prices of the US Gulf Coast kerosene-type jet fuel were $0.86 per gallon on January 25, which is $0.003 per gallon lower than the prices in the week ended January 18, 2016.

Kerosene-type jet fuel supplies and imports

The EIA’s weekly petroleum status report stated that jet fuel production and imports were 1.9 million bpd (barrels per day) and 392,000 bpd for the week ended January 22, 2016. This indicates that jet fuel production and imports rose by 440,000 bpd and 126,000 bpd, respectively. Current jet fuel products supplies are 4.4% more than in the corresponding period last year.

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Analyzing jet fuel inventories and prices

Jet fuel inventories were around 14% higher than the previous inventory levels, and production levels were also 4.4% higher than in the previous year. However, jet fuel consumption is expected to decline 0.18% compared to last year, which means that the oversupply will impact prices in 2016.

Crude oil inventories in the last week have fallen, even though there is an increase in the production levels, which is a good indication of increased demand. The snow storm on the East Coast will send jet fuel demand down for this week, as many airlines canceled operations. Thus, inventory builds are expected in the upcoming weeks, which will certainly impact prices.

The fall in crude oil inventories indicates increased demand, which will boost prices and help refineries such as Western Refining (WNR), Chevron (CVX), Marathon Petroleum (MPC), Holly Frontier (HFC), and Valero Energy (VLO). The Energy Select SPDR ETF (XLE) holds 13.7% of Chevron (CVX).

EIA estimates

The EIA estimated that US jet fuel consumption rose by 70,000 barrels per day, or 4.8%, in 2015. The EIA also forecast that jet fuel consumption will slightly decline by 0.18% in 2016 due to the improvement in fuel economy and lower passenger travel rates. In 2017, jet fuel consumption is estimated to rise by 20,000 barrels per day, or 1.3%.

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