Price of Jet Fuel Could Rise on Higher Diesel Demand

Monday June 11, 2018

The aviation fuel market will likely be affected by the marine fuel market in the run up to 2020, analysts believe.

With an established price relationship between jet and diesel fuel, the price of diesel is expected to rise on the back of the sulfur cap change for bunker fuel. Subseqent strong demand for distillate grades could push up prices for diesel and, by the same token, for jet fuel.

"These rules are going to impact airlines," Mark Maclean, managing director at Commodities Trading Corporation Ltd Mark Maclean was quoted as saying by business news provider Bloomberg.

"The impacts will not be isolated only within the shipping industry, these changes will affect the entire oil and middle-distillate complex,"  Maclean added.

Middle distillates include jet and diesel fuels.

Maclean, who advises on hedging strategy, says that prices for jet fuel for mid-2020 have risen by more than 40% since the middle of last year, tracing gains in both crude and diesel. Rising profit margins for diesel, one of the fuels that airlines reference when hedging their costs, are a sign of the impact the new shipping rules already are having on the market, he said.

However, the situation is far from clear. Refining economics also says that increased diesel production means more jet fuel resulting in a glut of the product and weaker prices.