The boom in US jet fuel output driven by disruptions from the US-Iran war is getting extra help by the economics associated with biofuel blending in road fuels.
US refiners have been on a tear with jet fuel output this year, setting production records as the Mideast war curtailed flows and prices rose. Output has fallen since late June highs, to 2.068mn b/d in the week ended 31 July, according to the latest weekly data by the US Energy Information Administration (EIA), but remains 4.3pc higher than a year earlier.
But refiners also have extra incentive to push more of their output toward jet fuel thanks to higher costs associated with meeting the US' Renewable Fuel Standard (RFS) for road fuels. In the four months since the Environmental Protection Agency finalized biofuel blend mandates for 2026 and 2027, prices for renewable identification numbers (RINs) created by blending and the Argus Renewable Volume Obligation (RVO) have reached all-time highs, signaling higher blending costs across the refining space.
The RVO, which measures an obligated party's compliance costs for biofuel blending via RIN credit prices, peaked at 39.28¢/USG on 7 July after being valued near 22¢/USG in early March. Unlike diesel, petroleum-based jet fuel is not an obligated fuel bound by the RFS. As a result, refiners with the flexibility to adjust distillate yields may favor jet fuel production over diesel.
Higher yields meet global demand
Higher jet runs at US refineries have translated into greater export availability at a time when global supply remains disrupted through the strait of Hormuz, where 20-25pc of global jet fuel exports have historically transited. US jet fuel exports rose by 62pc year-on-year to an average of 308,000 b/d in July, according to Kpler tracking data, while EIA statistics indicate weekly volumes reached 445,000 b/d last week, or more than triple levels a year earlier.
Yet, inventories remain 5.7pc above year earlier levels at 46.9mn bl.
The Gulf coast is driving almost all of the increase in exports as regional production rose by 14.1pc annually to 1.185mn b/d last week, according to the EIA. Production on the US east coast, midcontinent and west coast remained below year-earlier levels. US Gulf exports comprised roughly 90pc of total national jet fuel exports in July, according to Kpler data.
US jet cracks have strengthened since early June, peaking near $79/bl on 29 July before declining to roughly $67/bl by 4 August compared to just $23.66/bl at the same point last year.
Refiners double-down on jet
Refiners are poised to continue taking advantage of strong jet fuel margins in the near term, with multiple jet fuel capacity expansions either planned or recently completed.
HF Sinclair completed a project allowing it to switch roughly 7,000 b/d of output between diesel and jet fuel at its 145,000 b/d Puget Sound refinery in Anacortes, Washington.
Phillips 66 is planning a two-phase project at its 105,000 b/d Ferndale, Washington, refinery to increase jet fuel capacity by 12,000 b/d over 2026 and 2027.
Marathon added 10,000 b/d of jet production capacity at its 253,000 b/d refinery in Robinson, Illinois, and brought 30,000 b/d of jet capacity online at its 617,000 b/d Garyville, Louisiana, refinery in March.
The payoff for any jet output expansions may already be underway. In its second quarter earnings call in late July, independent refiner Valero said it expected third quarter margins for jet to widen because of an open arbitrage to Europe and as the US transitions to winter-grade diesel specifications.
