Fuel Costs Threaten to Lift Airfares

"Airfares have eased from last year's highs. Now a resurgence in jet-fuel prices is threatening to push them higher again.

Prices for the kerosene-based product have climbed since December, propelled by diminished supplies after winter storms shut down refineries. Swelling demand also pushed up prices, as Chinese travelers took to the skies to celebrate the Lunar New Year and freedom from Covid restrictions. The global jet-fuel price index maintained by S&P Global is up 20% since Dec. 7, while prices on the U.S. East Coast are up about 77%.

While global demand for gasoline and diesel recovered from its pandemic downturn, jet-fuel consumption is just now taking off. The International Energy Agency forecasts that jet fuel will drive 44% of the 1.9 million barrels a day of global oil-demand growth that it expects this year, after accounting for less than 6% of demand last year, according to research firm Rystad Energy.

Sanctions on Russia in February 2022 sent refined oil-product prices soaring, after these Western sanctions curtailed Russian exports. Last June, S&P Global's jet-fuel index shot up to $4.33 a gallon, near its highest level ever.

Meanwhile, the U.S. ended 2022 with its lowest inventories of jet fuel since 1996, according to Energy Information Administration data.

Fresh sanctions on Russian refined products set to start Feb. 5 threaten to further affect global supplies.

Even with the recent run-up, jet-fuel prices have yet to hit last year's highs because jet fuel's price is the sum of the cost of the crude oil needed to make it and a premium charged by its makers and distributors, and crude-oil prices are down about 37% since last June.

Still, jet fuel's run could be stopped short by the oil market's reaction to it, said Vikas Dwivedi, global oil and gas strategist at Macquarie Group. Refiners in China have room to increase production. New refineries there and in the Middle East are scheduled to start by the middle of this year. "You could simultaneously grow jet demand in a big way," Mr. Dwivedi said, "and then meet that demand through all these different items."" [1]

1. Finance & Markets: Finance & Markets: Fuel Costs Threaten to Lift Airfares
Henderson, Bob.  Wall Street Journal, Eastern edition; New York, N.Y. [New York, N.Y]. 03 Feb 2023: B.10.
Henderson, Bob.  Wall Street Journal, Eastern edition; New York, N.Y. [New York, N.Y]. 03 Feb 2023: B.10.