West Coast jet fuel margins fell in August because of high inventories
Note: To calculate the crack spread, we subtract the Brent crude oil average spot price from the Los Angeles jet fuel wholesale spot price.
More jet fuel has been in U.S. West Coast inventories than over the previous five years for 29 out of 35 weeks so far in 2024, according to our Weekly Petroleum Status Report (WPSR). High inventories helped reduce Los Angeles regional crack spreads for jet fuel to an average of 5 cents per gallon (gal) in August, lower than any point in the last five years, including during the onset of the COVID-19 pandemic in 2020. Crack spreads represent the price difference between products and crude oil and can be used to determine the relative value of various petroleum products for refineries to produce.
West Coast jet fuel inventories reached an annual high of more than 12 million barrels in the week ending September 6 and have exceeded the previous five-year average by 20% or more every week since July 12. More jet fuel in West Coast inventories this year primarily reflects increased refinery production, as well as reduced demand for jet fuel compared with pre-pandemic levels.
Demand for jet fuel on the West Coast was higher for the first half of 2024 than for the last four years, according to our Petroleum Supply Monthly (PSM). Still, jet fuel product supplied—our proxy for consumption—remains less than it was in 2019. Some factors reducing consumption may be a slower recovery in international air travel to Asia, a slower recovery in West Coast air travel relative to the U.S. average, and the effects of increased aircraft fuel efficiency compared with 2019.
West Coast refiners are probably continuing to produce so much jet fuel to continue producing gasoline, which accounts for most of the region’s total refinery yield. However, refiners are often limited with how much they can increase their gasoline yield as they must produce some volume of jet fuel or distillate fuel oil per each barrel of crude oil refined.
Jet fuel and distillate fuel oil are sometimes collectively referred to as middle distillates. Jet fuel typically possesses a higher energy content than conventional distillate fuel oil, but it also is not required to comply with the same sulfur specifications as ultra-low sulfur diesel (ULSD), the most widely consumed form of distillate fuel oil. Refiners have some limited ability to adjust their yields between the two fuels by adjusting their crude oil slate and processing equipment and may do so according to market needs.
According to our WPSR, West Coast refinery yields of jet fuel were higher than yields of distillate fuel oil in 26 out of 35 weeks. Refiners produced more jet fuel as a percentage of their output in five of the first six months of this year, according to our PSM data. In 2023, jet fuel yields were only higher than distillate yields in four months, and from 2019 through 2022, West Coast jet fuel yields were never higher than distillate fuel yields on a monthly average basis.
Note: We calculate refinery yields of each product by dividing refiner net production by refiner net inputs of crude oil.
Higher jet fuel yields relative to distillate fuel oil have helped to keep overall refinery production of jet fuel closer to the pre-pandemic levels, despite refinery closures and reduced operational capacity on the West Coast since 2019.
Conversely, distillate production in the region has generally decreased. West Coast distillate production in the first half of the year averaged 395,000 barrels per day (b/d) in 2024 compared with 560,000 b/d in 2019, a 30% decrease. Less distillate production may reflect competitive pressure from increasing adoption of renewable diesel fuel—a drop-in fuel that can be easily blended with petroleum diesel and used in diesel-powered vehicles.
Principal contributor: Kevin Hack