Chicago jet fuel prices soar to highest in the world

Airlines flying from Houston to Chicago may want to load up on something other than passengers at the start of the trip -- extra jet fuel.

Landlocked Chicago has the highest jet fuel price by far of any major spot market in the world, thanks mostly to refinery issues. At $129.13 a barrel Wednesday, May 22, it was $10 higher than the closest region, the perennially short North West Europe. In gallons, it was at $3.0745, or 35.55 cents higher than the highly liquid US Gulf Coast.

Chicago jet fuel has been 23 cents or higher than the refinery-rich Gulf since April 29, and above 30 cents for the last eight trading days, according to Platts data. Wednesday's premium was the highest since a record 46.75 cents on October 19, 2005, during a six-day period that saw the only other dates above 30 cents.

"I don't believe I've seen this for such a prolonged period," one Midwest jet trader said. "We've seen superspikes that brought Chicago to roughly this amount over the Gulf but not for this long."

Imagine seeing seeing a 25- to 35-cent difference from where you are filling up your car and the next nearest gas station. And then imagine it goes on for nearly a month.

Airlines may not be howling much for several reasons, such as having enough fuel stored at airport tanks or filling up their tanks enough for the round-trip journey. They may also price much of their fuel off the Gulf Coast market, and not Chicago. That makes it the supplier's responsibility to buy the barrels and get them to a busy airport like Chicago's O'Hare International.

The famous saying compares long lines to being stacked up like planes over O'Hare. In this case, it is the traders waiting for production to resume at hampered Midwest refineries, or for the arrival of barrels stacked up on Explorer Pipeline out of the Gulf Coast. You are not buying unless you absolutely need it.

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US Energy Information Administration data released early Wednesday showed Midwest jet output down 22,000 b/d week-over-week to 202,000 b/d for the reporting week ending May 17. The Midwest produced 254,000 b/d for the same week a year ago. Jet stocks were at 6.43 million barrels, down 326,000 barrels on the week and 834,000 on the year.

Among the refining issues in the Chicago region are lengthy turnarounds at BP's 405,000 b/d refinery in Whiting, Indiana, and ExxonMobil's 248,000 b/d refinery in Joliet, Illinois. Additionally, the Phillips 66-operated 306,000 b/d Wood River refinery in Roxana, Illinois, has had multiple issues within the past two weeks.

Chicago prices are so high that traders looked to Canada -- a big jet fuel importer -- for barrels, but said they could not make the logistics work to truck in the needed volume.

Tightness in the prompt market was also attributed to shipping delays and longer-than-usual transit times on Explorer Pipeline, which runs from the Gulf Coast to Tulsa, Oklahoma, and further to Chicago with a 785,000 b/d capacity.

"It seems like this is the longest time it has been this much over the Gulf Coast," a second jet source said. "It's been about five years since Explorer Pipeline has been full by my recollection. Just can't get enough product into the Chicago market."

EIA monthly data detailing pipeline movements among the five regions showed 1.26 million barrels of jet fuel went from the Gulf Coast to the Midwest in February, the latest reporting month. That was 45,000 b/d, which was at the average for the last two years. In 2006 and 2007, it averaged more than 100,000 b/d, but never went over that level since the full effect of the recession in mid-2008.

"This is more of a structural issue," the first trader said. "The market is just under supplied. With Whiting being reduced, it takes supply barrels out and worse, it adds another buyer to the market."

Additional supply should be heading up the pipeline on the next shipping cycle next week, but relief will not truly arrive until the refineries return as planned by early June, he said.

"I've been waiting for them get back up to full rates," the trader said. "It makes my life easier."

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