Squeezed refineries are struggling to supply a world hungry for both diesel and jet fuel
Jet-fuel prices have resurfaced as a major concern for U.S. airlines.
Jet-fuel prices are hovering near their highest levels since the U.S.-Iran war began, threatening to become the latest fuel supply shock to result from the stalemate at the Strait of Hormuz and reviving worries about costs for airlines and travelers.
A broader fuel crisis due to the war and new sources of strife have roiled global markets and sent fuel prices soaring, inflicting economic pain on American consumers. Most of the attention lately has been on diesel prices, which in the U.S. have climbed well past $6 a gallon on average.
But jet fuel and diesel are the kissing cousins of the energy world, both coming from the same middle-distillate group at the refining stage.(Gasoline is a light distillate.) When refiners seek to make more jet fuel, they do it at the cost of their diesel runs, and vice versa.
"High diesel prices inevitably mean high jet-fuel prices," and the fundamentals of the diesel market remain worrisome, said James Simpson, a director at S&P Global Energy.
Compounding the problem, the diesel market is significantly larger than the jet-fuel market, so any movement in the former has a disproportionate impact on jet fuel, Simpson added.
The refiners still in operation are racing to supply a market in dire need of diesel, which powers all manner of heavy-duty vehicles and machinery, while also scrambling to procure enough crude shipments to process.
That has led to higher prices for jet fuel, just a few months after global airlines, U.S. carriers included, averted a major fuel crisis that had threatened their all-important summer travel season.
U.S. average retail diesel prices hit a record $6.53 a gallon on Tuesday, the latest in a series of all-time highs stretching back more than a week.
The national average price for diesel has surged nearly $1 in a month, having zoomed past a 2022 high on its way to break through the $6-a-gallon threshold earlier this month.
U.S. retail gasoline averaged $4.48 a gallon Tuesday, about 40 cents higher than a month ago and breaking with the usual pattern of price drops after the Labor Day holiday.
U.S. refiners to the rescue
Jet-fuel prices spiked the most in the early days of the U.S.-Iran war, as the sidelined Persian Gulf refineries were major suppliers of the fuel to Europe and Asia.
Jet fuel on the Gulf Coast, the U.S. benchmark, is at $4.44 a gallon on Tuesday, coming off $4.68 a gallon a week ago, according to S&P Global Energy Platts. It hit a 2026 peak of $4.78 a gallon in early April.
The war started in late February, just around the time refiners the world over were building up their jet-fuel stockpiles ahead of the summer travel season.
By April, the International Energy Agency was warning that Europe could run out of jet fuel in six weeks. Markets adapted, however, largely thanks to U.S. refiners. They have been running their plants a lot closer to maximum capacity than usual as they race to supply a pinched domestic market and to export their high-margin jet fuel as well as gasoline and diesel. Refiners in Nigeria also picked up some of the slack.
As refiners focused on jet-fuel runs in the spring, airlines announced capacity cuts, trimming their schedules to preserve fuel for their more profitable and popular routes. By around the end of July, stocks of jet-fuel were at more robust levels than those of diesel and gasoline, S&P Global Energy's Simpson said.
"Everyone had been so focused on jet fuel that, suddenly, it was becoming less of an issue," he said. That in itself created imbalances - refiners shifted to diesel "perhaps a little bit too early," he said.
"You think, summer is nearing an end, and let's get on the next bandwagon. But ultimately, things may have moved a bit too fast," landing the world in the current situation of higher prices for jet fuel, Simpson said.
To make matters worse in Europe, recent high temperatures have stretched the continent's period of peak demand for summer air travel, creating a late-season bump in demand for jet fuel.
'Money does the allocation'
Airlines have resumed trimming schedules through the end of the year, resulting in higher airfares for some destinations and worries about even more expensive tickets over major traveling holidays such as Thanksgiving and Christmas.
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So far, however, the prevailing sentiment on Wall Street is that while airlines may reduce their capacity slightly, it won't be by as much as they did this spring and summer.
"Airlines are in the midst of a second fuel shock in less than a year in 2026," analysts at Citi said in a recent note, adding that luckily, investors can lean on familiar playbooks. Stocks are unlikely to bottom quite as quickly because airlines "will be slower to announce meaningful capacity cuts in reaction to rising fuel," they said.
So far, that has been borne out. The U.S. Global Jets exchange-traded fund JETS has gained about 1.5% this month, compared with September gains of 1% for the S&P 500 index SPX.
On a year-to-date basis, however, airlines are on the losing end of the comparison, weighed down by their declines earlier in the year. The Jets ETF is up around 3% this year, while the broader stock index has gained 10 times more.
Airlines, U.S. airlines included, are staring at tougher decisions ahead, said George Ferguson, global head of aerospace, defense and airline research at Bloomberg Intelligence. Fuel prices will stay higher for longer, and airlines will have to make their decisions based on the fuel prices they see coming, he added.
And that's also where the ongoing focus by Delta Air Lines $(DAL)$ and United Airlines $(UAL)$ on wealthier, more loyal travelers may make a difference.
"Like everything in the world, money does the allocation," Ferguson said. People willing to pay more will continue to fly, and the carriers that can attract those people will get the fuel they need to fly their planes profitably.
Demand is waning as the fall shoulder season gets under way, but things still look precarious. The Hormuz situation, the new flashpoints in the Red Sea and the ongoing war between Russia and Ukraine are taking out more refinery capacity and creating bottlenecks for fuels, choking off more crude supplies.
"It's sort of a reckoning coming: Jet fuel's up, diesel's up, consumers are a bit squeezed," Ferguson said. "I know airlines have to look at their winter schedule, where there's less demand, and start really thinking about what they really want to fly, and where they can really make money." In doing so, they lose economies of scale and also risk their market share, adding to their challenges, he added.
Those airlines with healthier balance sheets may have an easier time weathering the difficulties. In the U.S., that includes Delta and United as well as Southwest Airlines (LUV), he said. Delta also owns a refinery in Pennsylvania through its subsidiary Monroe Energy.
Those carriers already challenged by the current economic environment, meanwhile, are in a bigger bind. They include Allegiant $(ALGT)$, Frontier $(ULCC)$ and JetBlue Airways $(JBLU)$, which rely on less wealthy travelers, and to some extent American Airlines (AAL), which was relatively late to court well-heeled passengers.
"Full-service carriers, I think, will do a bit better," although they will not be unscathed, Ferguson said. "They can sell premium seating, and if the stock market hangs in there, their consumer is the sort that they're looking at their wealth rather than their income, and they're not so much worried about traveling."
No matter the health of their balance sheet, however, every airline will feel the pinch, he said. Fuel costs vie with labor costs as a top expense for airlines, and in the second quarter, that fuel bill was their No. 1 cost, accounting for about 30% of expenses, versus around 26% for labor.
-Claudia Assis
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