April 12, 2018 / 5:49 PM / 3 months ago

Jet fuel prices rise with global demand as economies expand

NEW YORK, April 12 (Reuters) - Prices for jet fuel have strengthened relative to diesel and gasoline prices and should keep climbing on strong demand for air travel fueled by global economic growth, analysts said.

Demand for jet fuel has increased over the last two years as the global economy has strengthened and airplane passenger traffic has risen, said Sandy Fielden, director of oil and products research at Morningstar Commodities in Austin, Texas.

Production of jet fuel has already risen in recent years. U.S. refinery and blender net production of kerosene-type jet fuel reached a record 1.7 million barrels per day in 2017, according to the U.S. Energy Information Administration, up 7 percent from two years ago.

Ultra-low sulfur diesel futures, used as a proxy for the jet and kerosene markets, reached $2.1431 a gallon on Jan. 26 on the New York Mercantile Exchange, the highest since Feb. 27, 2015; it last settled at $2.0927.

However, jet fuel bought in the cash market has outpaced other refined products in the last year. In New York Harbor, jet fuel for physical delivery JET-DIFF-NYH traded on Thursday at 1.50 cents per gallon above the futures contract, traders said.

At this time one year ago, jet fuel was at 3.75 cents per gallon below futures. By comparison, ultra-low sulfur diesel traded in the cash market (ULSD) has lagged. ULSD traded at 0.50 cent per gallon above the futures contract on Thursday, traders said, compared with 0.50 cent per gallon below that benchmark a year ago.

With demand likely to keep growing, Michael Dei-Michei, head of research at JBC Energy in Vienna, Austria, said jet fuel will more frequently outprice diesel and at times gasoline.

Producing jet fuel that meets industry specifications is not straightforward, Dei-Michei said. Much of the kerosene that comes from simple crude distillation towers needs to be further fixed and hydrotreated, he said. Jet fuel accounts for about 10 percent of products yielded from refineries, according to EIA data.

“The U.S. has at least some sort of advantage since shale crude mostly yields a decent quality kerosene that can more easily be brought up to jet spec,” he added in an email.

(For a graphic on U.S. product supplied of jet fuel, as well as U.S. refinery production of jet fuel, see: tmsnrt.rs/2E4BpCp)

Reporting by Stephanie Kelly; Editing by David Gregorio

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