US jet differentials trade at pandemic-highs, -lows within same session

US jet fuel differentials exhibited extreme and opposing movements on Feb. 4 as regional dynamics exacerbated pricing differences seen for the same product in neighboring regions.

Early morning trading on Feb. 4 saw February barrels for the Los Angeles Pipeline differential trade at a 40-cent discount to the NYMEX March ULSD futures contract.

While the differential rebounded before assessments, this discount was greater than any assessment on record from S&P Global Platts, with the greatest assessed discount seen at front-month futures minus 36.25 cents/gal for a handful of days in at the onset of the coronavirus pandemic in April 2020.

Later in the day the differential traded at minus 30 cents/gal and minus 27 cents/gal, with the latter deal setting the day's assessment. The assessment, down 3 cents/gal from the day prior, still approached an eight-month low, with the differential last lower on June 14 at front-month futures minus 28 cents/gal.

Jet fuel traders attributed weaker prices to strong stock levels on the West Coast, with volumes accounting for over a quarter of total product stored across the US. The latest data from the Energy Information Administration showed stock levels at 9.52 million barrels in the week ended Jan. 28.

In addition to setting a 10-week high, volumes were nearly 1 million barrels above the rolling four-week average of 8.56 million barrels, with additional imports looming on the horizon.

According to shipping data from Kpler, two cargoes of jet fuel are due to discharge a combined half a million barrels into the Los Angeles area by Feb. 7. These deliveries will mark just over a week since the region saw imported jet, with US Customs data showing a Medium-Range vessel discharged 320,000 barrels of China-origin product in Los Angeles on Jan. 28.

Gains seen in Southern, Eastern US

Inverse movements were seen on the opposite side of the country, meanwhile, with differentials on the Atlantic Coast even hitting pre-pandemic levels as they ventured into positive territory.

The differential for New York jet fuel for Buckeye Pipeline rose 3.75 cents/gal on the day to plus 3 cents/gal. This was rooted in activity in the Platts Market on Close assessment process where deals at both plus 4.25 cents/gal and plus 1.75 cents/gal were executed in differing laycans.

While the benchmark differential was last seen in positive territory in January 2020, the premium was last stronger on Oct. 22, 2019, when Platts also assessed value at front-month futures plus 3 cents/gal.

The Gulf Coast benchmark differential, meanwhile, surpassed a one-year high. Jet fuel for Colonial Pipeline's ninth cycle traded at minus 12.75 cents/gal in the MOC assessment process, marking a 1 cent gain on the day. The differential was last stronger on Dec. 17, 2020, when Platts had value at front-month futures minus 12.75 cents/gal.

Jet fuel demand has been strong across the US, with the rolling four-week average of product supplied at 1.47 million b/d. This is within approximately 185,000 b/d, or 10%, of the rolling average for the same period in 2020, before travel restrictions were placed on visitors entering the US.

Additionally, passenger throughput at US airports has surged so far in 2022, with the Transportation Security Administration recording nearly 50 million passengers. This is nearly double from the same period in 2021 and down about 25% from levels seen in the first weeks of 2020.