Takeoff, eh? At time of need, New York jet fuel heads to Canada

— New York jet fuel prices spiked from mid-July through August, and new data gives more insight why. Blame Canada.

Canada may be sending everything from comedians and crude into the US. But in July, it took in a good bit of US jet fuel, mostly out of New York.

US Energy Information Administration data released September 30 showed the US exported its second-highest level of jet fuel in July, at 6.4 million barrels, behind only December's 6.6 million barrels. Canada was the top destination with 1.67 million barrels, or 54,000 b/d a day, which is about equal to almost six average cargoes for the month.

It's a record amount shipped to Canada for the month of July, though not an all-time monthly record. But sources said Canadian refineries have had more than the normal issues or scheduled maintenance from July and that it would continue through October. Atypically, Canadians at first pulled largely from the East Coast to meet the short that developed just as airline demand revved up in the US' northern neighbor.

"They are the closest major market for us," one Canadian source said.

New York jet fuel barge at the end of September against dipped below the NYMEX ULSD futures contract, but they jumped to a premium of 31 cents/gal on August 29, the highest level against its underlying futures since the aftermath of Hurricane Ike in 2008. The so-called "up-down" from the Gulf Coast to New York was 28.75 cents/gal, far above the 4.51-cent/gal tariff on Colonial Pipeline, and a great arbitrage for those who could actually place barrels into the always-full pipeline that runs from Houston to New York.

Traders hunted for barrels in a market where US stocks reached 18-year lows, demand was near eight-year highs and pipeline issues hampered delivery. John F. Kennedy International Airport was down to a two-day supply of jet fuel at one point, about half the norm.

Then add the Canadian demand into that mix, still drawing from the US Northeast despite high prices  into late August, when Glencore was said to have loaded the Seto Express out of Paulsboro, New Jersey, to take 300,000 barrels of jet fuel into eastern Canada.

Several traders said Canada's East Coast increased imports in preparation for heavy planned work at the Irving Oil refinery in New Brunswick and other refineries in Canada. "Some US Northeast guys are supplying Irving with products during their turnaround," said one US products trader who had to look elsewhere for the supply he usually receives from Irving.

Another jet fuel trader expected most of Canada's refineries to be back up and running at full rates only by late November, just in time for winter demand for the cold-weather properties of jet fuel and kerosene.

Carl Larry, Oil Outlooks president, said Irving had issues even before two months of planned maintenance it announced in September, but that other Canadian refineries wanted to get ahead of a forecasted early winter, especially after a harsh last winter.

"When people see those kind of stories like snow in Canada already, everybody is going to freak out and say, 'I need to fill my coffers up as soon as possible'," he said.

Blog post continues below...

Request a free trial of: US Marketscan
	US Marketscan delivers a daily market overview of the major refined products and daily price assessments for all key products traded in the US, as well as market commentary, NYMEX and IPE futures settlements, and more.
	(opens in a new tab)

US exports to Canada have likely switched back to the Gulf Coast, which is also shipping steady amounts to Africa and Latin America. The Netherlands was the second-biggest destination for US jet fuel in July, with 1.15 million barrels, followed by Nigeria with 854,000 barrels and Mexico with 719,000 barrels.

Mexico in July regained its perennial perch as the top draw of US oil products, at 583,000 barrels a day, but Canada wasn't far behind at 523,000 b/d. In June, however, Canada took in 477,000 b/d of US products, from pentanes to petroleum coke, beating Mexico by 20,000 b/d.

That switch first happened, just barely, in June 2004 and again in October 2008. But not again until May 2013, then in October and April. Traders said Mexico has reduced its US imports due to improved refineries and extra storage. But Canada has also increased its gasoline and jet fuel demand from the US, especially in the last year.

So it might be easy to say the latest Whopper is not that US-based Burger King is trying to take over Canada's Tim Hortons. It's that Canada is becoming the leading importer of US oil products.

Then again, for a little perspective, look on the crude oil side. Canada sent the US 2,802 b/d of crude oil in July, more than twice that of second-place Saudi Arabia, and just shy of Canada's record for any month. Makes that product whopper look more like a donut hole.