September 3, 2015
US airlines paid an average $1.83/gal for jet fuel in July, the lowest level in six years, as consumption reached a seven-year high, data from the Bureau of Transportation Statistics showed Thursday.
The $1.83/gal paid for scheduled and unscheduled service was down from $2.05/gal in June and $2.94/gal in July 2014. The month-on-month increase reverses the overall recent trend downward for jet fuel costs. Ten of the last 12 months showed declining prices.
With dropping fuel costs, airlines increased their fuel consumption for July to its highest monthly level since August 2008. Airlines used 1.555 billion gallons of jet fuel in July, a jump from the 1.459 billion gallons in July 2014 and slightly below 1.604 billion gallons in August 2008.
Additionally, airlines have been transitioning to more fuel efficient aircraft, meaning that more gallons of fuel consumed translates to even more miles flown than in previous years with less-efficient planes.
Despite the additional fuel used, total airline spending on fuel fell to $2.849 billion in July from $4.401 billion in the same month a year earlier.
July was also the third month in 2015 when airlines paid on average less than $2/gal for jet fuel.
Airlines typically see a lag in pricing compared with the spot market.
Benchmark Gulf Coast spot jet fuel remained steady throughout July, starting the month at $1.70/gal and ending it at $1.46/gal, Platts data showed. The average price for spot jet fuel in the Gulf Coast in July was $1.54/gal.
Airlines typically pay 10-15 cents more after taxes and logistics costs.
ARA storage mitigates spikes
Elevated storage levels of jet fuel across Northwest Europe could continue to reduce volatility in CIF Northwest European cargo differentials, sources said, as supply would likely be released from tank to meet any unexpected tightness on the prompt physical market.
In the month of August, the range for premiums was $11/mt -- varying from a low of $9/mt August 6 to a high of $20/mt August 28 -- versus $13.50/mt in July. Premiums varied as much as $27.25/mt in the month of March.
Given the depth of the contango on the jet fuel market for a large part of 2015, ullage across the Northwest European region has been limited for much of the year as traders sell their product forward and hold it in tank to capture the carry.
Recently released data from BNP Paribas highlights the storage trend. To the week ending August 27, jet fuel stocks in the ARA refining center stood at 6 million barrels -- 98.2% higher than one year ago and 54% above their five-year average.
Though ample volumes are currently locked away in storage, these contango storage plays can be unwound easily if market conditions shift and the prompt physical market tightens enough for traders to see value.
"I think Europe will leave peak demand season with peak stocks, which inevitably means the roll down that has been prevalent all year will continue. And it takes away the ability of the market to spike because there is a lot of stock laid down," one trader said.
"And its a global problem, not limited to Europe, it's just Europe has the most tank age."
Asian jet fuel/kerosene market sentiment remained under pressure from rising stockpiles in the region, industry sources said Thursday.
Middle distillate stocks in Japan gained 4.6% to 39.05 million barrels in the week ended August 29, from 37.32 million barrels a week earlier, data released Wednesday by the Petroleum Association of Japan, showed.
The stocks were up 3.2% from 37.82 million barrels a year earlier, according to Platts data.
Stocks of jet fuel and kerosene rose 16.6% and 5.2% week on week to 7.68 million barrels and 15.39 million barrels respectively, and jet stocks were up 16% and kerosene stocks were 6.8% higher year on year.
Market sources described Asia as awash with supply following the addition of new refineries in the Middle East.
"It's more difficult to arbitrage [cargoes] from Asia to the EU while the Middle East is sitting in the middle with lower cost," a Southeast Asian trader said.
In tender news, Malaysia's Petco sold 225,000 barrels jet fuel for loading over September 15-16 at a discount of around $0.80/b to Mean of Platts Singapore jet fuel/kerosene assessments, FOB, market sources said. Qatar's Tasweeq is offering 321,200 barrels of Pearl GTL jet, and 321,200 barrels of Jet A-1 for loading in the second half of October. The tender closes September 15, with validity until September 16.
Meanwhile, some arbitrage cargoes from Asia were seen being fixed to the US.
The Analipsi Lady is fixed on subjects with Trafigura, to carry 60,000 mt of jet fuel from Taiwan to the US West Coast/US Atlantic Coast, loading September 17, markets sources said.
The Analipsi Lady is currently docked in Singapore, Platts ship-tracking software c-Flow showed.