Jet Fuel Prices Up Sharply on War Premium Amid Refinery Turnarounds

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Written by Dan Graeber for IIR News Intelligence (Sugar Land, Texas)

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Summary

While the U.S. market is a bit insulated from the war, jet fuel supplies may be at a premium. Globally, prices have more than doubled since fighting in the Middle East began.

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Supply Shortages Not Just for the Middle East Anymore

From regular refinery maintenance issues in the U.S. market, to war-related outages in the Middle East, a shortage of distillates such as jet fuel is causing wide-ranging issues, analysis finds. According to Industrial Info Resources data, there are 22 U.S. refinery turnaround projects, worth $348 million, that were planned for completion from April through June.

Airlines for America, an industry trade association, said global jet fuel prices have risen 73% since joint U.S.-Israeli airstrikes on Iran in February triggered broader war in the Middle East, and U.S. prices recently passed $5 per gallon. Millions of barrels of crude oil remain trapped inside the Persian Gulf amid dueling U.S.-Iranian blockades of the Strait of Hormuz, while millions more are shut in because of the fighting.

Much of the crude oil that moves through the Persian Gulf and the Strait of the Hormuz is conducive to producing distillates like fuel oil, diesel and jet fuel. Refining outages, lower distillate-rich crude feedstock, and dwindling stocks limit the availability of jet fuel. Fuel oil, the primary marine fuel, is also feeling the squeeze as ships re-route due to the Strait of Hormuz blockades.

Refineries as far away from the conflict zone as Japan are dealing with issues because of the lack of crude oil supplies.

Airline Industry on its Back Foot

By mid-April, the airline industry was sounding the alarm about supply-side challenges, with Willie Walsh, the director-general of the International Air Transport Association, saying the potential shortages are "sobering."

"Along with doing everything possible to secure alternative supply lines, it's important that authorities have well-communicated and well-coordinated plans in place in case rationing becomes necessary, including for slot relief," he said.

Overseas, and the Lufthansa Group, which controls the German airline, said last week that it would eliminate some 20,000 short-haul flights through October because of the increased costs associated with flying.

Pressures Emerge in the U.S.

In the U.S., supply issues are coming largely from regular refinery maintenance.

According to Hillary Stevenson, vice president for energy market intelligence for Industrial Info Resources, refineries in the Midwest, known as PADD II in industry parlance, had 378,000 bpd offline on average in April, the peak month for the spring maintenance. That's adding to gasoline and jet supply issues in the U.S., the largest crude oil producer in the world.

By the Numbers

• 20,000: Flights cancelled in Europe
• $5: Price per gallon for U.S. jet fuel

PADD II refineries are fed in large part by Canadian crude oil, which are rich in distillates, a refined product category that includes diesel and jet fuel. Distillates can also be used as a diluting agent to facilitate the movement of heavier crude oil grades.

Canadian refiner Suncor said it debuted the production of jet fuel at its Montreal refinery last year. Canada produces approximately 47 million barrels of jet fuel annually.

Stevenson added that refineries along the U.S. West Coast are under pressure as well due to supply-side pressures of a different kind.

"California imports a lot of jet fuel from Asia and the Middle East and some of those flows and production are impacted, leaving those markets scrambling for different sources," she said.

California is already under pressure because refineries are closing down. The U.S. Department of Energy had warned before the war that the state would have to rely heavily on external supplies to meet state-level demand.

Demand in the U.S. market, meanwhile, could be on the rise ahead of the summer holiday season that marks the end of the scholastic calendar year, and as recent federal funding was set aside for airport security agents, debottlenecking check-in lines.

Key Takeaways

• War premium no longer just a Middle East issue.
• Refining outages, lower distillate-rich crude feedstock, and dwindling stocks limit the availability of jet fuel.

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About Industrial Info Resources
Industrial Info Resources (IIR) is the leading provider of industrial market intelligence. Since 1983, IIR has provided comprehensive research, news and analysis on the industrial process, manufacturing and energy related industries. IIR's Global Market Intelligence (GMI) helps companies identify and pursue trends across multiple markets with access to real, qualified and validated plant and project opportunities. Across the world, Industrial Info Resources is tracking over 250,000 current and future projects worth $30.2 Trillion (USD).