Weather freezes flights, but not jet fuel demand in US regions

Where are jet fuel prices most depressed because of the thousands of flight cancellations from major snowstorms and a cold snap that dropped temperatures in the US Midwest and Northeast below those in Antarctica?

Not Chicago, which saw a 5 cents/gallon rise from Christmas to January 7 in the jet fuel differential--the difference between the NYMEX ULSD futures contract and actual physical jet fuel barrels that will be delivered.

Not New York, where the differential spiked 10.8 cents/gallon from December 30 through the first week of 2014.

Not the US Gulf Coast, which produces half the US jet fuel and delivers a healthy chunk of that into both the above markets, and saw a 2.15-cent gain in the differential from Christmas through January 7.

Still guessing? Try sunny and warm Los Angeles.

"Jet demand has got to be down because of all the flights down across the country. That will impact L.A. for sure," said one West Coast source, noting that many of those flights would have gone to the West Coast and beyond.

Unlike those other regions, the West Coast does not have lower than normal inventories. He said refiner selling has been strong as Los Angeles jet fuel dropped 5.25 cents/gal since Christmas in the differential and from an outright price of $3.08/gal on December 26 to $2.9167/gal on January 7, according to Platts data.

"I've seen refiners selling gasoline, diesel and jet," he said of USWC producers. "It's been a general drift down based on refiner offers."

In New York, on the other hand, it's not only hard to find barrels, but it's hard to find barges, many of which have been diverted and converted to carry a bustling crude oil market in recent years. One Atlantic Coast source said Shell had been looking without success for a week for a prompt jet fuel barge in New York. A Shell trader did not respond to a request for comment.

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A full Colonial Pipeline does not allow for quick resupply on the Houston-to-New York line. With the cold weather kicking in, Colonial has carried greater proportions of heating oil and diesel and less jet fuel in recent weeks on the line that can carry 1.16 million barrels a day. Stocks on the East Coast also were drawn down in December due to blending into other distillates to take advantage of jet fuel's cold-weather properties.

The result is an East Coast jet fuel market that is heavily backwardated, in which current prices are more expensive than future ones. Still, the USAC source said the situation is actually nothing new for the hard-hit New York region based on his experiences. Demand could just be delayed as flights are made up later.

Or jet fuel could be pressed its other big use, blending into heating oil so that product doesn't congeal in lower temperatures. Rising exports also could be a factor, although more likely in the US Gulf Coast than from the Atlantic Coast.

"I've never seen flight cancellations lead to lower prices," the source said. "Winter happens and they cancel half the flights in New York and jet fuel doesn't move."

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