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Oil prices: Expect 'spectacularly' higher airfares, says analyst

·Markets Reporter
·2-min read

Jet fuel prices, already strikingly higher than last year, are exceptionally high in the Northeast. The upward price movement could threaten a further spike in airfares.

Jet fuel on the New York spot market was trading at a record high of $6.76 per gallon on Monday morning, more than triple compared to last year.

"I’ve never seen that kind of a [jet fuel] price," Tom Kloza, co-founder of Oil Price Information Service, told Yahoo Finance. "This is spectacularly high."

Prices for rest of the U.S. are currently sitting under $4 per gallon, noted Kloza.

“As far as the number that we’re seeing on the East Coast right now, something is going on. Somebody must be caught with a large short position, or somebody is in arrears in delivering,” said Kloza.

The analyst says during COVID-19, oil refiners have been more focused on “maximizing their production of diesel at the expense of making a lot of jet fuel, because we didn’t need a lot of jet fuel.” That trend continued during the Russian invasion of Ukraine amid a shortage of diesel.

He said the price action is not demand driven. "This is driven by supply, and the lack of supply.”

Refueling aircraft, aircraft maintenance at the airport
Refueling aircraft, aircraft maintenance at the airport

The higher jet fuel prices could trigger a massive spike in airfares, which have already been trending higher.

“Airfares…they may be spectacularly higher, particularly if you’re flying out of the Northeast,” said Kloza.

The analyst predicts such East Coast prices aren't sustainable at these levels.

"These numbers aren’t going to last. I’ve never seen that [price] for any product, in the U.S.," said Kloza.

The price of jet fuel has seen an overall spike amid higher oil prices. In January of 2021, U.S. airlines were paying an average of $1.51 per gallon.

Oil prices rebounded on Monday after a weekly loss for both West Texas Intermediate and Brent crude.

WTI futures were trading 3.4% higher by mid-morning just above $102/barrel, while Brent is up 2.8%, hovering around $107/barrel.

Ines is a markets reporter covering stocks from the floor of the New York Stock Exchange. Follow her on Twitter at @ines_ferre

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