The lowest seasonal supply of jet fuel on record is pushing prices higher and leading to voluntary restrictions in the New York region as the nation's busiest air hub prepares for a holiday rush.
Spot jet fuel in New York Harbor, the trading center for the U.S. East Coast, jumped to 22 cents a gallon above diesel futures this week, the biggest premium in three years. Stockpiles in the region fell to 8.83 million barrels last week, the lowest for this time of year since at least 1990, government data show. Airlines received an industrywide request yesterday to limit the fuel they take from John F. Kennedy International airport.
Airport deliveries were delayed after Buckeye Partners LP unexpectedly shut lines for inspections. The tight supplies underscore the New York region's dependence on a pipeline system delivering fuel to New York's JFK and LaGuardia, and Newark, New Jersey's Liberty International airports from the Gulf Coast. The surge in prices hit just before the Sept. 1 Labor Day holiday, when 14 million U.S. travelers are expected to take to the skies.
"Demand is strong and that's the bottom line," Mike Wittner, Societe Generale SA's head of oil market research, said by phone from New York yesterday. "Did we expect it to be this strong? Did we expect prices to be this high? Probably not. It lines up with the bigger picture of strength in the world economy."
The number of people flying on U.S. airlines in the seven days surrounding the Sept. 1 holiday will rise 2 percent from 13.8 million a year earlier, Washington trade group Airlines for America said.
Carriers put more seats on sale to accommodate the increased demand, the group, which represents companies including American Airlines Group Inc., Delta Air Lines Inc., Southwest Airlines Co. and United Airlines Inc., a unit of United Continental Holdings Inc., said in an Aug. 21 statement.
American Airlines and United said they'll have enough fuel to keep aloft and aren't expecting flight disruptions.
Jet fuel in New York reached the most expensive in almost six months this week at $3.0705 a gallon, contrasting with nationwide gasoline pump prices that data from AAA, the nation's largest motoring group, show were the lowest since February.
Sales in the U.S. have surged to the highest level seasonally since 2004, aided by a post-recession recovery in air travel and favorable weather, John Heimlich, chief economist for the trade group, said by telephone Aug. 27.
New York's three main airports together handled more passengers last year than Atlanta's Hartsfield, the busiest single U.S. facility, data compiled by Airports Council International-North America show.
The airlines rely on the Colonial Pipeline Co. system that carries fuel from the Gulf Coast to Linden, New Jersey, and a Buckeye network that delivers supplies to the airports from Linden. Buckeye's lines provide JFK, LaGuardia and Newark airports with "substantially all" of their jet fuel needs, the Houston-based company said in a 10-K filing Feb. 26.
Dependence on a single pipeline network and limited storage at New York's airports have rendered the region's jet fuel market sensitive to disruptions such as a 12-hour shutdown of Buckeye's Linden pump station on Aug. 26 and an 8-hour outage on a part of Colonial's system Aug. 21, Heimlich said.
PBF Energy Inc.'s Delaware City refinery also had a power failure last week that cut fuel production, Genscape Inc., an energy data company based in Louisville, Kentucky, said. And a tanker was chartered to export jet fuel from the New York area for delivery to Canada, further shrinking supplies, ship-fixture data compiled by Bloomberg show.
Airlines had about two days of fuel in storage at JFK on Aug. 27, Heimlich said.
"You had a combination of demand surging relatively quickly without the storage capacity and throughput on the system to handle it," Heimlich said.
Spokesmen for Buckeye didn't immediately respond to e-mail and telephone requests for comment.
Airports generally have enough fuel to cover at least four to five days of operations, Mike Boyd, president of Boyd Group International, an aviation consulting firm in Evergreen, Colorado, said yesterday by phone.
"If you get down to a two-day supply, that's like having 22 cents in a bank account," he said.
Fuel supply shortages are particularly critical at JFK because of the large number of international flights.
"You can't tanker fuel into Kennedy if you're coming from London," Boyd said. "Coming in from Buffalo, maybe you can get away with it. Kennedy is really critical. This distribution system has that vulnerability."
An advisory was posted yesterday on an industrywide system by Delta, head of a JFK Airport fuel committee, noting that fuel supplies were "constricted" and asking airlines not to load extra fuel there until inventories rebuild, Jean Medina, a spokeswoman for Airlines for America, which helped build the communications portal, said by e-mail yesterday.
Trebor Banstetter, a spokesman for Atlanta-based Delta, declined by e-mail yesterday to comment.
"Southwest has been doing all we can to minimize uplifts and avoid the use of discretionary fuel" in New York, Brandy King, a Southwest Airlines spokeswoman, said by telephone from the company's headquarters in Dallas. "Our suppliers have not expressed concern and we continue to have sufficient fuel."
The recent slide in stockpiles shouldn't be enough to affect Labor Day air traffic, said Dave Swierenga, president of aviation consultant Aeroecon in Round Rock, Texas.
While airline supplies may be "on the low side, I don't think it's critical," he said.
Ron Marisco, a spokesman for the Port Authority of New York & New Jersey, which manages the region's airports, said the agency has seen no operational issues because of the fuel surge.
Exactly how much the run-up in fuel prices affects airlines' costs will depend on how heavily they're hedged, and they'll probably absorb the higher prices to keep their fares down, Wittner said.
"The competition between airlines is fairly intense," Wittner said. "I think they'll take the hit."
Colonial has in the past three years expanded its line delivering diesel, heating oil and jet fuel to New York Harbor by 165,000 barrels a day and has space on the system to send more jet fuel to the region, Steve Baker, a spokesman for the company based in Alpharetta, Georgia, said by e-mail Aug. 27. The company is discussing further expansions with customers, he said.
New York's jet fuel supply situation will improve once Labor Day travel is over, marking the end to the summer travel season, the airline trade group's Heimlich said.
"The good news is, if there is any, that September is a lighter travel month," he said. "The amount of flying will be less, so that will ease this crunch."