The Jet fuel prices are expected to rise some time later this year because of the new marine fuel regulations that require ships to use reduced sulfur level fuel beginning January 2020. These new regulations by International Maritime Organization (IMO) will cause the jet fuel prices to soar because both jet fuel and ship fuel are similar distillates and refiners can only make a finite amount of low sulfur fuel that needs to be shared between both the shipping industry and the airlines.
Critics however feel that the availability of light crude in abundance can offset the expected rising costs of jet fuel used to power the air crafts. Light crude has a byproduct known as Naphtha which is a kind of plastic that refiners can use to produce jet fuel at lower costs.
According to Airlines for America (A4A) air travel has been on the rise and in year 2018 the air travel between the United States and other countries has reached an all time high. The US Energy Information Administration estimates that the prices for jet fuel will increase by 10 cents a gallon in the year 2020 compared to 2019.
Most airlines in the US are concerned about the new IMO rules that may affect their profitability because higher jet fuel prices will mean that the airlines have to incur higher costs in buying the jet fuel necessary to fuel their aircrafts.
The data from Argus media suggests that in January 2020 the Jet fuel swap prices at New York Harbour is estimated at $1.86 a gallon compared to $1.84 this month.
The International Maritime Organization’s (IMO) new regulations require the sulfur level in the fuel used by ships to be at 0.5% starting January 2020 from the current sulfur level of 3.5%.
As pointed earlier refineries can only make a finite amount of low sulfur fuel and that supply has to be shared between both the shipping industry and the airlines. Jet fuel only accounts for 10% of the overall fuel produced and it is not feasible for refineries to process heavier crudes to produce jet fuel due to operational costs. A better solution to produce cost effective jet fuel is to use light crude oil that has Naphtha as a byproduct, refiners can use this plastic like Naphtha to produce additional barrels of jet fuel in the most economic way.