Jet fuel (also known as 'aviation turbine fuel') is the lifeblood of modern aviation. It's a specialized, high-quality type of kerosene-based fuel used to power aircraft with gas-turbine engines—think of every commercial airliner, cargo plane, and private jet you see streaking across the sky. The most common types you'll hear about are Jet A, used primarily in the United States, and Jet A-1, the standard across the rest of the world. From an investor's perspective, jet fuel isn't just something that gets planes from A to B; it's a critical economic barometer and a massive operating expense that can make or break the profitability of airlines and logistics companies. Its price ripples through the global economy, affecting everything from the cost of your vacation ticket to the speed at which a package arrives at your door. Understanding the forces that move jet fuel is essential for anyone looking to invest intelligently in the transportation sector.
So, why should a value investor care about a refined petroleum product? Because jet fuel prices are a major driver of costs and, therefore, profits for a whole slice of the economy. For the airline industry, fuel can easily represent 20-30% of total operating expenses. A sudden spike in jet fuel prices can wipe out an airline's profits, while a sustained drop can provide a powerful tailwind. However, the story is more complex than “high fuel prices = bad for airlines.” It's about volatility and predictability. Companies that can manage this key cost effectively, either through shrewd purchasing, operational efficiency, or financial hedging, often demonstrate superior management and a more resilient business model. For a value investor, analyzing how a company handles its energy costs is a fantastic window into its operational discipline and long-term viability. Furthermore, the price of jet fuel is a direct reflection of global economic activity. Rising demand for air travel and cargo points to a healthy, growing economy, while falling demand can be an early warning sign of a slowdown.
The price you see for jet fuel isn't arbitrary. It's a cocktail of global forces, refinery economics, and basic supply and demand.
The single biggest component of jet fuel's price is the cost of its raw ingredient: crude oil. As a general rule, when crude oil prices go up, jet fuel prices follow, and vice versa. Investors closely watch the main global benchmarks for crude oil, West Texas Intermediate (WTI) and Brent Crude, as they provide the baseline for all refined products. A geopolitical flare-up in the Middle East or a policy decision by OPEC+ that sends crude soaring will almost certainly lead to higher jet fuel costs within weeks.
The price of jet fuel isn't just the price of crude oil. The process of “cracking” crude oil into lighter, more valuable products like jet fuel, gasoline, and diesel at oil refineries has its own economics. The difference between the price of a barrel of crude oil and the price of the products refined from it is called the crack spread. This spread represents the gross profit margin for an oil refiner. A wide crack spread is fantastic news for refiners—it means they are getting paid handsomely to turn crude into fuel. A narrow spread can squeeze their profits. For investors, monitoring the jet fuel crack spread can provide clues about the profitability of refining companies and the balance of supply and demand for jet fuel itself.
Directly trading physical jet fuel is the domain of large commodity trading houses, not the average investor. However, there are several excellent indirect ways to gain exposure, all of which can be analyzed through a value investing lens.
Before investing in a company heavily influenced by jet fuel, ask yourself these questions: