Jet fuel markets find balance in an unbalanced world

Airlines pay close attention to weight and balance before takeoff. A plane can’t be too heavy and it needs a center of gravity.

Product markets, of course, also pay strict attention to weight and balance.

On my last flight, the airline asked for volunteers to move forward and balance the plane. A large class of young teens quickly jumped at the chance. These days, market weights (fuel supply) are running heavy, and traders are jumping quickly at the chance to fill any new market seats for almost every product.

Jet fuel is different. It may be the most well-balanced market out there.

The top 10 weeks for product stocks in the US have all happened since September. US Energy Information Administration data showed that the week ending June 10 is among that top 10, at 836.1 million barrels, which is unusual in that products usually draw down in the summer.

Gasoline stocks for that week, at 237 million barrels, have drawn down from record February levels, but only by 20 million barrels and we’re well into summer driving season.

ULSD stocks are at 133.4 million barrels, only 11 million below a record level in April. Propane stocks at 78.35 million are well below the record of 106.2 million barrels in November, but also building strongly again after hitting 62.2 million in mid-March.

Jet fuel’s record stock levels, meanwhile, date back to July 2010 at 48.7 million barrels, compared with 42.2 million on June 10. Demand peaked in October 2000; jet fuel production topped out in June 2005. Not exactly a market worried about wide swings on supply/demand.

Benchmark US Gulf Coast jet fuel delivered to Colonial Pipeline has averaged 12 cents/gal under the NYMEX ULSD futures contract since mid-February, with only a 1 cent standard deviation, an indicator of volatility.

The futures basis has moved up with the oil complex in that time, and the outright jet price has jumped from 92.2 cents on February 19 to $1.36/gal on Wednesday. But the key to local market volatility is the differential, and that shows very little movement on either side.

In other words, balance.

Other spot markets for US jet fuel show similarly strong centers of market gravity – the New York barge market has hovered close to the NYMEX all year, for instance. Los Angeles is a bit of an outlier. Its differential dropped 5 cents from late February to early May and then made it all back up again since then. Imports usually help balance the Los Angeles market, but none were at the ready for the latest push higher.

One might expect Canada to be off balance with jet fuel. The wildfires have caused severe shortages in gasoline and diesel in western Canada. But sources said jet is the one product that doesn't seem affected. "It's harming gas and diesel, but not jet," one airline source said. "They're just begging us to take more."