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Feature: New York jet fuel hits $7.59/gal, or $318.62/b, likely a refined products market record

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Feature: New York jet fuel hits $7.59/gal, or $318.62/b, likely a refined products market record

Highlights

Russia-Ukraine conflict catalyzes volatility

Trifecta of supply concerns squeezes market

Unprecedented bid levels send Buckeye benchmark to all-time high

Unprecedented volatility spurred by the Russia-Ukraine conflict has catapulted the price of jet fuel in New York Harbor to all-time highs in recent sessions, with unparalleled buying interest rendering jet perhaps the most expensive major refined product ever assessed by S&P Global Commodity Insights.

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S&P Global assessed the Platts New York jet fuel for Buckeye Pipeline benchmark April 4 at the NYMEX May ULSD futures contract plus 404 cents/gal, or $7.5861/gal ($318.62/b). This value, confirmed by a standing bid at plus 403 cents/gal in the Platts Market on Close assessment process, marked not only the strongest value on record for the benchmark but likely the highest price for a refined product assessment developed by S&P Global.

"Everyone is just trying to be first in line in the event there is a seller looking to hit the first bid," said one market participant at the start of the month.

With this upward trend, Buckeye jet fuel joins a small group of commodities that have been subject to remarkable volatility, like the Platts Northwest European LNG marker, which was assessed March 8 at $60.925/MMBtu, or approximately $360/boe. Volatility of this degree is also associated with April 21, 2020, when the CME Group's front-month May NYMEX WTI price traded as low as minus $40.32/b.

Market participants do not attribute this exponential leap in Buckeye jet fuel's value to a single, consequential event confined within the parameters of the Atlantic Coast jet fuel market. Rather, it is regarded as only the most recent development in a sequence of events beginning with the conflict between Russia and Ukraine.

Russia-Ukraine conflict inadvertently squeezes US jet production

Russia launched a "military operation" in Ukraine's Donbas region on Feb. 24, with the conflict soon engulfing the rest of the nation. While commodity markets across the globe surged on the news, an announcement on March 8 further complicated supply and demand fundamentals as the US announced it would be sanctioning imports of Russian oil and gas.

The US distillate market's initial reaction to the news was tailored to concerns around global, and therefore domestic, supply of jet fuel's sister product, diesel, resulting in a price surge for the road transportation fuel. On March 8, the day the US announced sanctions on Russian product, the Gulf Coast ultra-low sulfur diesel benchmark held a staggering 38.90-cent/gal premium over its jet fuel counterpart, in theory incentivizing a refinery's production of ULSD over jet fuel. In 2021 this premium averaged 16.15 cents/gal.

By the end of the month, US refineries were making approximately three and a half times as much ULSD as jet fuel, with the Energy Information Administration estimating weekly outputs at 4.81 million b/d and 1.39 million b/d, respectively. While this marked a seven-month high for ULSD production, jet production simultaneously hovered around four-month lows, with this crunch on supply setting the foundation for a reversal in distillate pricing relationships.

On March 24, Gulf Coast benchmark jet rose nearly 13 cents/gal on an outright basis, inverting its relationship to ULSD to hold a 6.46-cent/gal premium.

New York competes with larger hubs for fuel shipments

Atlantic Coast jet fuel pricing is linked to Gulf Coast trends by infrastructure, specifically the Colonial Pipeline network. Colonial's Line 2 is the largest distillate pipeline in the US, carrying jet fuel from refineries on the Gulf Coast, through the southern US, up the eastern seaboard and into the New York Harbor-area with the help of Line 3 and the Buckeye Pipeline network.

The New York Harbor-area is not self-sufficient in jet fuel production, historically rendering it reliant on jet fuel brought up from the Gulf Coast via pipelines. In order for jet fuel to supply the three major airports in the area—Kennedy International Airport, LaGuardia Airport and Newark Liberty International Airport—shipments must be diverted from other hubs along the pipeline networks, including the busiest airport in the US, Atlanta's Hartsfield-Jackson International Airport.

While Colonial and Buckeye do not publicize volumes transported on the network, pipeline allocation and freeze schedules suggest demand is recovering from the pandemic at airports along the lines, an occurrence that could potentially lure barrels otherwise destined for New York Harbor.

For example, Colonial's Line 16, which supplies fuel from Atlanta Junction to Hartsfield-Jackson, has seen six allocations in 2022, according to notices from the pipeline operator. In 2021, the same cycles were neither allocated nor frozen. An allocation indicates that nominations from shippers exceed available space on the line. A freeze means the line cannot accept any more shipments for the cycle.

Other major airports along the path to New York are Charlotte-Douglass International Airport and Nashville International Airport, both of which have seen allocated cycles in 2022.

Limited foreign imports rounds out trifecta of supply constraints

Compounding the situation is the lack of waterborne imports into New York Harbor. During the pandemic, when a closed arbitrage disincentivized jet shipments via pipeline from the Gulf Coast, market participants in New York Harbor found relief in incoming foreign product.

Prior to the pandemic, New York Harbor saw 3.6 million barrels of imported product in 2019. This volume roughly doubled in 2020 to 7.18 million barrels only to increase by another 55% in 2021 to reach 11.16 million barrels.

Just one vessel delivered jet fuel to the New York-area in the first quarter 2022, with the Nord Oceania discharging 296,455 barrels between March 11-12 according to US Customs data. The same period in 2021 saw 1.25 million barrels in imports. Shipping data from Kpler does not show any jet imports on the immediate horizon.

The most recent EIA data estimated USAC jet fuel stocks at 7.63 million barrels in the final week of March, surpassing a two-month low.

A push-and-pull relationship between ULSD and jet production, demand from airports in the US Southeast and low jet fuel stocks have served as the backdrop for a lack of offers seen in the Buckeye jet fuel market, with the last offer in the MOC assessment process seen on March 21.

Just two deals have been seen in the MOC since, with a deal at April futures minus 9 cents/gal seen March 22 and a deal at plus 78 cents/gal seen March 29. Remaining deals have been heard outside of the MOC.

"Crazy times," said another US jet fuel trader. "I just don't know what to think."