Air travelers take note – gas prices and demand NOT the oil driver

Instead, it’s production bottlenecks for non-gasoline oil products, says Goldman Sachs analyst Arjun Murti.

He notes that not too long ago, the refining price spread, or “crack” had the oil equivalent of gasoline about $9/bbl higher than jet fuel. Now, jet fuel is $30/bbl higher on a per-barrel basis.

“Gasoline, at least in the short-run, has traded more like an annoying by-product of crude than as its core fundamental driver.”

The “crack” widening on jet fuel is going to make the airline industry suffer more. The story notes that airlines are divided between those that regularly “hedge” their fuel costs and those who don’t. Those who don’t, who thing prices are high, even artificially high, right now, may be due for a rude awakening:

Chris Avery, aviation analyst at JP Morgan, told CNBC those that have decided they can’t bear to hedge at current price levels, perhaps because they feel the price is not reflective of a longer term picture, will be hit hardest by ongoing rises in crude prices. For the time being he says the strength in crack spreads is irrelevant, it’s the underlying price of oil that is causing the biggest pain.

But overall trend is undeniable according to products traders. They say demand for jet fuel can only continue to rise as Europe races to compete with soaring demand from the Middle East & Asia. This they say means strength in middle distillates is likely to remain a long-term rather than short-term trend.

OPEC, insisting there is no supply issue, blames the weak dollar, which appears to have bottomed out (for now), and speculators.

But, we know different. The Saudis, in particular, have enough invested in American securities that they can’t afford for the American market to take too much of a hit. So, if they can’t do more, whether through pumping, or other means, to rectify the situation, then there’s a problem.