Jet Fuel Prices Higher Than Ever, And They’re Only Expected To Go Up

A stunning rise in the price of jet fuel due to the Russia-Ukraine war has sent airfares soaring, and industry experts say it’s only going to get worse.

Jet fuel prices have continued to spike because of the crude oil supply disruptions as a result of the Russia-Ukraine war, the national average price for a gallon of Jet-A was $4.35 a year ago, that is now up to $6.09 per gallon, almost a 30 percent rise. Supply is broadly constrained, and prices have been spiking across the U.S... The energy department said this week that the inventory level for East Coast jet fuel stood at 6.5 million barrels, that’s the lowest since 1990. 

This has sent airfares soaring, at the start of this year the average cost of a round-trip domestic flight was $235, in April that has already gone up to $330, a 40 percent rise and they expect another 10 percent rise in May bringing it up to $360; airlines typically pass on to passengers as much as 60 percent of a volatile rise in fuel prices, the process which took months pre-pandemic is much quicker now, with higher demand and a shift in passenger behavior which now favors buying tickets closer to the date of travel. Important to note is that the rise in fuel prices not only has implication for airfares but also for the already high costs of global shipping, Amazon announced plans this week to impose its first “fuel and inflation surcharge” for sellers whose goods it delivers and others in the industry are expected to follow.

Delta said in their Q1 financial results that it paid an average of $2.79 per gallon of Jet-A, a 33 percent increase from Q4 2021, the airline said they expected fuel prices to rise 15 to 20 percent over the next three months to between $3.20 and $3.35 per gallon. American Airlines said they paid $2.80-$2.85 per gallon up almost 30 percent as well from $2.04 per gallon in Q4 2021.

Source: Platts, Datastream, IATA

The problem seems to be most severe in the eastern U.S. where fuel is supplied by three pathways: the Colonial Pipeline which is running at full capacity, refineries in the Philadelphia area and distillate imports from Europe. According to industry experts it is the latter which is causing the most problems. To reduce the buying of oil from Russia, Europe has diverted the fuel supply that normally goes into the U.S. East Coast to the European market to assure their fuel supplies. Shipments that were supposed to go to the New York market were diverted to Los Angeles as California fuel prices began to climb. Other shipments were diverted to Baltimore and Washington as supplies ran short. Stockpiles are also running low with many airports stocking only a three-day supply, jeopardizing flight schedules if there is a bad-weather event or fuel shortage.

Refineries produce Jet-A from the same beach of oil as diesel, and with refineries producing as much diesel as they can since Europe has now curtailed most of its purchases of Russian diesel choosing to import diesel from the U.S. instead. Industry experts have said that it is hard to produce more jet fuel when the market is demanding more diesel, and equally hard to produce more diesel when the market was demanding more jet fuel.

Many experts in the industry are saying that they expect to see volatility in fuel and airfare prices for a while and even more so as the Russia-Ukraine war drags on.