Jet Fuel Pricing 101

The U.S. produces roughly 1.5 million to 1.75 million barrels per day of jet fuel, and while that is much less than other distillate fuels (about 4.5 million to 5 million b/d) and gasoline (9.5 million to 10.5 million b/d) — it’s still a vital portion of the oil industry — as well as global travel and commerce.

What is jet fuel?

In the U.S., aircraft most commonly use “Jet A” jet fuel, while “Jet A-1” is used on Europe, Asia, and other international markets. The fuels are nearly identical, although “Jet A-1” has a slightly lower freezing point that makes the fuel more useful in colder climates. These are the fuels OPIS assesses.

The military has a unique specification of jet fuel called “JP-8,” which is like normal jet fuels but contains other additives to help with performance and safety for military applications.

Av-Gas, or aviation gasoline, is another fuel that is sometimes also mentioned in the same realm as jet fuel. It, is actually used to power a more conventional engine powered by internal combustion used in propeller-driven planes, as opposed to a jet engine.

Why is jet fuel important?

While jet fuel is a smaller portion of the refined product matrix than gasoline or other distillate products, the impact on the economy and on businesses is much greater.

Jet fuel powers not only aircraft transporting passengers, but also helps power planes that transport goods across vast distances much quicker than on-road or on-sea transportation.

Jet fuel also accounts for a big portion of airline expenses, with major airlines spending several hundred million dollars on jet fuel every financial quarter. For example, Southwest, one of the bigger airlines in the U.S., spent over $1.5 billion on fuel and oil in just the first quarter of 2023 — totaling nearly 25% of the entire airline’s expenses for the quarter.

Just to fill a single Boeing 747, one of the more common aircraft in major airline fleets, takes just under 57,500 gallons of jet fuel. Using the example from above, at $2.25/gal, that’s a total of nearly $130,000 to fill one plane — and most air carriers operate hundreds of aircraft per day.

How does jet fuel trade?

Jet fuel trades in the physical bulk market, where deals are done for tens of thousands of barrels at a time — with most trades happening at a differential to the NYMEX futures market. Jet fuel trades against NYMEX Ultra-low-sulfur Diesel (ULSD) contracts, which not only can represent futures physical delivery of material but also most distillate products in the U.S.

Trading happens at plus or minus a value to the futures contracts. For example, if NYMEX ULSD is pricing at $2.45/gal, and a physical jet fuel trade is done at -20cts/gal (or 20cts beneath NYMEX contracts), jet fuel would be valued at $2.25/gal — to procure material. There are additional fees for transport, taxes, etc., to move those barrels to their destination.

How does OPIS cover jet fuel in the spot market?

OPIS covers jet fuel trading on the spot market level in the seven major spot markets: Los Angeles, San Francisco, the Pacific Northwest, Gulf Coast, Group 3, Chicago, and New York Harbor. OPIS also tracks jet fuel in several secondary and breakout markets, like Gulf Coast Waterborne, L.A. paper contracts, and Linden Junction, to name a few.

OPIS tracks spot trading all day, from 9:00 a.m. Eastern Time to 5:15 p.m., except for New York Harbor area markets, which are tracked starting at 8:00 a.m. Eastern Time.

What moves jet fuel markets?

Jet fuel movement can be very cyclical, with peaks in demand (and higher prices) nearing big travel weekends and holidays. More air travel means more jet fuel used, and demand usually jumps ahead of those big travel events.

For example, for Memorial Day 2023, the Energy Information Administration measured a nearly 25% spike in just one week. Jet fuel demand rose from 1.43 million b/d to 1.78 million b/d.

However, many of those demand increases are short in nature and dissipate as the holiday winds down. Just after Memorial Day 2023 and the big jump, jet fuel quickly moved back to where it was before, at just under 1.5 million b/d.

Jet fuel is also very susceptible to supply issues. With jet fuel only a small portion of the market, if supplies in an area are short, prices can skyrocket.

Over the last few years, the northeast has been especially prone to huge spikes in jet fuel cost. In early April 2022, supplies of jet fuel were so short, trading was taking place at several dollars above the NYMEX — peaking at a $3-4/gal premium to NYMEX futures and putting prices briefly above $7/gal mark.

Jet fuel markets can also be affected by refinery issues and downtime, with the market being especially vulnerable to disruptions from hurricanes — which typically form during the busier travel season in the summertime.

How can you stay up to date with the latest jet fuel markets?

We offer a comprehensive range of three reports covering various aspects of the jet fuel market:

  • Worldwide Jet Fuel Report:
    Our comprehensive daily report includes commercial airline jet fuel prices for over 15 key global markets. It provides valuable insights, news, and analysis on jet markets, empowering you to make strategic decisions.
  • Europe Jet, Diesel & Gasoil Report:
    For Northwest Europe and Mediterranean markets, our report offers transparent pricing information for ports across the region. Additionally, it provides valuable insights into supply trends and import volumes, enabling you to stay ahead in the market.
  • Asia Jet Fuel & Gasoil Report:
    Gain access to benchmark pricing, news, and analysis for Asian markets. Our report assists you in minimizing risk and effectively managing your hedging strategy in the ever-changing jet fuel market.

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Tags: Jet fuel