Jet fuel differentials firmed to end a week that saw production and demand exactly matched in the US, just not in the Chicago market, with its world-high outright prices.
Platts assessed Chicago unchanged at NYMEX June heating oil futures plus 23 cents/gallon, the Gulf Coast up 30 points to minus 14.25 cents/gal, New York barges 2 cents higher to minus 10 cents/gal. Los Angeles rose about 1.50 cents on a new shipping month to NYMEX July minus 11.25 cents/gal.
At 3:15 p.m. EDT, Platts assessed the June NYMEX contract at $2.8562/gal, down 16 points. July was assessed at $2.8527/gal.
Activity withered Friday as traders headed into a three-day holiday weekend in the US.
"It was quite dull from a US perspective," one trader said. "It seems like US refiners cut back jet production some, so we're not as sloppy here."
All regions except Chicago had seen a sharp decline in differentials since April 1 as refiners maximized jet production over diesel to avoid renewable fuel costs that had risen tenfold from the beginning of the year to hover around Friday's 7.32-cent range. Those costs do not attach to jet fuel, causing refiners like Valero to say they increased jet fuel yields.
But US Energy Information Administration data released mid-week showed US jet fuel production fell sharply for a second week to 1.445 million b/d, while stocks slipped nearly a half million barrels to 38.6 million barrels for the week ending May 17. Product supplied, also called "implied demand," fell 178,000 b/d week on week to 1.445 million b/d, matching output.
Traders said they saw little interest in imports with such balanced supply and demand, as well as prices in line with other regions in the world.
Except for landlocked Chicago, that is, where jet fuel is more than $10 over other any other major spot market in the world at $129.72/b, and at a 37.25-cent premium over the highly liquid Gulf Coast. It was the 10th straight day of premiums over 30 cents.
The region has turned into a local market, with refiners capturing cheap Bakken crude and producing cheap refined products in return. But that dynamic breaks down when area refiners have breakdowns and turnarounds, forcing traders to pull up product from the Gulf Coast on Explorer Pipeline.
"Arbitraging into the Midcontinent is not a steady win over the long haul, and risky when you need to ship due to Explorer times," a jet fuel supplier said.
"BP is trying to come out of turnaround, the arb is hard to capture due to slow transit times, few airlines buy on a Chicago basis and few will after this pricing period," he said, detailing the troubles for suppliers. "Once Whiting is up to full speed, jet will settle down, but be subject to this type of blowout given the transit time."
