Delta Airlines had little to say about its 185,000 b/d Trainer, Pa., refinery at an "investor day" presentation in New York on Wednesday, but Chief Executive Ed Bastian told analysts the carrier will continue to stay out of the fuel hedging business.
The company lost billions of dollars on hedges in 2009 when oil prices fell from more than $100/bbl into the $30s/bbl range and closed out the year with a loss.
An analysis of prices by OPIS, suggests the refinery's financial results worsened this year.
After it acquired the plant in 2012, Delta implemented structural changes to boost the facility's jet fuel yield to about 20%, more than twice the output of most refineries processing light sweet crude.
Delta typically has little to say about Trainer's operations and that was the case when it released its third-quarter earnings report in early October. Profits or losses for the refinery are relegated to footnotes in the balance sheet. In its Q3 earnings results, Delta reported a $33 million, compared to a $119 million profit in the same period of last year.
Still, senior officials with the airline often credit the company's decision to acquire the refinery for reducing the cost of jet fuel for all airlines. Delta's Monroe Energy affiliate, which is responsible for running the plant, swaps gasoline and diesel production for jet fuel from other suppliers at multiple locations in North America.
Jet fuel was perhaps the most profitable refined product after Russia invaded Ukraine in February 2022. Monroe imports light sweet crude from a number of countries and its output can be measured against prompt Brent costs.
The return on jet fuel was spectacular for much of 2022 and 2023, but the product is now trading a fraction of those earlier margins.
The gross margin for jet fuel is now about one-sixth of what Trainer-manufactured product fetched in the second quarter of 2022.
Returns for diesel and gasoline have likewise tumbled toward what refining analysts might suggest represent "midcycle" returns. Delta has never issued guidance for the refinery's return, viewing its contribution as immaterial to the cash generated by its airline operations.
The company on Wednesday outlined the benefits it would see if jet fuel prices continue to fall, a goal given that the company is no longer hedging its fuel costs.
Delta said it is bullish on air travel and said margins on those operations could widen by 13 to 15% next year. Bastian said the company is confident the 2024 increase in travel has "has got multiple years to go."
In its presentation Delta said the company's refinery operations have benefited from a decline in the cost of complying with the federal Renewable Fuel Standard program due to lower Renewable Identification Number credit prices. In several years over the last 10, RIN expenses were considered a drag on fuel margins for merchant refiners that move most of their gasoline and diesel in bulk markets without blending biofuels.
There were several years where the Renewable Volume Obligation topped $10/bbl but the RVO as of Thursday morning was at about 9.35cts/gal or $3.93/bbl.
Jet fuel output doesn't incur the cost, but the obligation has in some years narrowed margins sharply for gasoline and diesel output.
This content was created by Oil Price Information Service, which is operated by Dow Jones & Co. OPIS is run independently from Dow Jones Newswires and The Wall Street Journal.
--Reporting by Tom Kloza, tkloza@opisnet.com; Editing by Jeff Barber, jbarber@opisnet.com
(END) Dow Jones Newswires
November 21, 2024 13:53 ET (18:53 GMT)
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