Jet Fuel Premium Collapse as Airlines Ground Fleets Weakens Oil

(Bloomberg) — Jet fuel’s 100 percent rise over the past year to a record $4.36 a gallon is setting the stage for its decline in the next six months.

AMR Corp.’s American Airlines Inc. and UAL Corp.’s United Air Lines Inc. are among carriers readying their biggest cutback in fuel use since 1991 because of the price. The U.S. airline industry plans to ground 413 aircraft, eliminating 8.8 percent of seating capacity, as increasing fuel costs spur losses of as much as $13 billion, the Air Transport Association says.


Fuel demand will fall 7.5 percent this year, or 95,000 barrels a day, and 104,000 barrels a day in 2009, according to the U.S. Energy Department. That will spur as much as a 90 percent decline in the fuel’s premium to heating oil futures, said Mike Busby, manager of oil and refined-products trading for Northville Industries Corp. in Melville, New York.

“People are responding to a doubling of prices and the airline industry is one industry that is responding,” said Edward Morse, chief energy economist at Lehman Brothers Holdings Inc. “The markets will weaken significantly after the third quarter.”

The decline in airline fuel consumption parallels the drop in gasoline sales to a five-year low as drivers take vacations closer to home and use mass transit. Crude oil declined 35 percent in the three months after Sept. 11, 2001, a time when airline traffic plummeted 30 percent.

Bloomberg