Why is the crackspread in jetfuel increasing?

misterno

I read the below article about how the crackspread of airjet fuel is increasing and lately it has been $30 a barrel.

Now, we all know that the crackspread in gasoline much lower than that due to the fact that gasoline consumption is decreasing in the US. But isn't it same for jet fuel? So why is the spread going up on this one?

http://industry.bnet.com/travel/2008/04/10/how-the-crack-spread-is-killing-airlines/

roadcage · Coal Joined: May 24, 2006 Posts: 5

The article incorectly defines the crack spread. The real crack spread is a commodity package that approximates the material balance of a modern refinery Cat Cracker. A Cat Cracker is fed "gas oil", or distillates too heavy for diesel fuel. The stuff is processed at high temperature, low pressure, short residence time reactor that cracks the large gas oil molecules into smaller ones. A typical crack produces two molecuses with one more double bond than the original gas oil. The light olefins are typically alkylated to gasoline with isobutane. The naphtha cut is also a good gasoline blend stock. The distillates are blended to kero and diesel, and the residues end up as feed to other cracking processes or residual fuel oil.

Now to answer why kero is so high. Virtually all of the limited USA demand destruction has occurred within the gasoline pool. Simultaneously, in their infinite wisdom, the powers that be (congress) mandated Ultra Low Sulfur Diesel effective the summer of '06. Distillate Hydrotreating is a mild Hydrocrack (High H2 partial pressure long residence time cracker which saturates any olefins formed and springs the mercapatans and other sulfur bits as H2S.

This processing tends to reduce the overall Diesel yield and increase the overall gasoline yield for a refinery. All this at a time when the market is requesting less gasoline and the same diesel.

Kero, Home heating oil, and diesel are all made by blending up a refinery's distillate cuts in different ratios. The refiner responds by blending for max diesel and hence minimim jet.

Viola, High diesel, kero and home heating oil prices existing with believe it or not relatively low gasoline prices.

Yes, low gasoline prices. Up until the summer of 06, summer pricing for gasoline was typically sightly more than diesel. Now it is significantly less than diesel.

Unintended consequences of congressional action at work.