Refiners are shifting output toward jet fuel as Middle East disruptions tighten oil-product markets
The Facts
- Jet-fuel prices have risen amid the Middle East conflict, increasing costs for airlines and tightening supplies ahead of the peak summer travel season.
- Goldman Sachs said refiners are responding to price signals by trying to maximize jet-fuel production.
- Goldman Sachs said increasing jet-fuel output could tighten supplies of other refined products, including diesel and naphtha.
- The loss of Middle Eastern supply has affected Europe’s jet-fuel market, though Goldman Sachs said Europe still has strategic stocks that can help it cope for an extended period.
- Prices for physical crude cargoes have fallen from last month’s highs as buyers stepped back, even though the Strait of Hormuz remains closed.
- Market participants have warned that the recent easing in physical oil prices may be temporary because the market is relying on stopgap measures that may not be able to cover disruptions indefinitely.
How left and right are reading this
- Both agree
- Refiners are reacting to the jet-fuel crunch, but shifting output toward aviation fuel can simply move the strain elsewhere, leaving diesel and naphtha tighter even as strategic stocks and softer crude prices offer only limited relief.
- They split on
- Less a disagreement than a question of emphasis: who bears the squeeze as costs and shortages spread through fuel markets, versus the market mechanism of refiners following price signals and the fragility of that adjustment.
Context
Why would making more jet fuel squeeze other fuels?
A refinery has to balance how much of each product it makes from a barrel of crude. Goldman Sachs said refiners can optimize operations to raise jet-fuel output, but doing so can reduce the volumes available for other products such as diesel and naphtha Business Insider,Business Insider Af….
Who is most directly affected by the jet-fuel crunch?
Airlines are directly affected because higher jet-fuel prices raise operating costs, and regions dependent on disrupted Middle East supply are also exposed. Goldman Sachs said Europe’s jet-fuel market has been meaningfully affected, although it still has strategic stocks to help manage the disruption Business Insider,Business Insider Af….
What remains unresolved in the wider oil market?
The main uncertainty is whether the current easing in physical crude prices will last. Bloomberg and The Business Times reported that buyers have recently backed away and premiums have dropped, but traders cautioned that prices could rise again if the Strait of Hormuz disruption persists and temporary supply workarounds prove insufficient Bloomberg Business,Business Times.
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