Another Recession Indicator:Less Demand for Jet Fuel

by Brad Zigler

Need one more indicator of a recession? Well, it came in this week's petroleum status report from our friends at the U.S. Energy Department.

Among all the other numbers-and believe me, there were a lot of numbers-was a telling little item on jet fuel demand. While demand for gasoline and distillate fuels is up 0.9% and 0.5% over year-ago levels, our thirst for jet fuel has actually been slaked. Demand for the stuff is down 1.3% compared to last year. This seems a likely consequence of a slackening in business travel, the airlines' daily bread and butter.

What about those other numbers?

More surprises, that's what. Crude oil stocks, expected to rise by 1.5 million barrels, instead shot up by 2.4 million. Last week, inventories had been drawn down 2.3 million barrels.

So how did the oil market react to this? The June NYMEX crude contract sold down as much as $1.17 per barrel to $116.90 before finding its legs at $117.69. The United States Oil Fund ETF (USO) was dropping like a stone at last look, shedding $1.14 per share to $93.88.

But then, what do you expect after yesterday's $1.44-a-barrel buying spree?

Gasoline supplies are starting to come onstream in a more springlike pattern. Refining activity is heightening with capacity utilization now at a surprisingly high 85.6%. Why surprising? Just last week, refineries were operating at only 81.4% of capacity. Insiders had been expecting utilization to increase this week, but only to the 82.1% level.

Stocks of gasoline rose a whopping 3.2 million barrels, sideswiping expectations of a 2.3 million-barrel drawdown. The June NYMEX unleaded blendstock gasoline futures dropped below the $3-a-gallon level in reaction, while the United States Gasoline Fund ETF (UGA) recovered from a 27-cent-per-share swoon to trade at $55.94 by mid-morning.

A 1.4 million-barrel drop in distillate fuel inventories also surprised traders, who were expecting supplies to remain flat after a modest 100,000-barrel uptick last week. June NYMEX heating oil futures eased 2.62 cents lower to $3.271, while the United States Heating Oil Fund (UHN) was stuck 57 cents lower on paltry volume at $53.24 per share.

June NYMEX Crude Oil - Intraday

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Comments

[User 86999]

Doesn't that lack of demand have to do with all the plane groundings for technical defects.

[Shaggieman]

Absolutely, take the FAA out of the picture and the lack of demand disappears pretty fast.

[paultaut]

Don't forget about a few airline bankruptcies...