Oil & Gas

Barge shortage plagues US spot naphtha market
ICIS news, June 1, 2006
by Leslie Contreras

A barge shortage has continued to affect the US naphtha market as naphtha supply partners seeking to do spot business were being forced into long-term contract deals to ensure barge availability, sources said on Thursday.
Outdated and defunct equipment has contributed to the barge shortage, sources said, which in turn has
affected naphtha market logistics since last year.

Another factor in reduced barge availability was a slowdown in the production of new barges as
manufacturers shifted to double-hull barges from single-hull barges.
As a result of the shortage, naphtha suppliers have found that renting barges for spot deals has taken
longer than usual, sources said. Naphtha suppliers were having an easier time using barges already
contracted out from barge companies for long-term deals, said a market source.
The logistic problem for spot naphtha deals was not new, said one trader, but combined with the
volatility in the market, naphtha buyers were less apt to buy as much product for spot deals.
Most leading oil producers in the US, including Shell, BP, Exxon, ConocoPhillips and Valero, market
naphtha, which is produced when creating gasoline from crude oil.

Naphtha N+A prices have ranged from 175-198 cents/gallon during April and May.

ICIS Copyright © Reed Business Information 2006
Airlines prepare as US jet fuel prices soar
ICIS news, June 30, 2006
By Leslie Contreras

The airline industry was bracing itself for record jet fuel prices this year with the use of fuel conservation programmes, cuts in non-fuel costs and hedging, an industry economist said on Friday.
The price difference between jet fuel and West Texas Intermediate crude oil (the crack spread) jumped
from $3.63 in 2002 to $15.84 in 2005, according to the Air Transport Association of America (ATA). The
year-to-date May crack spread for jet fuel was $16.03 and was expected to rise through the year, said
ATA vice president and chief economist John Heimlich.

But each penny increase in the price of fuel increases annual fuel costs by $199m
(€165m) for US airlines. A 10 cent/gallon increase would cost the industry nearly $2bn/year, Heimlich

“Every single month (in 2006) has been higher than a year ago,” Heimlich said. “It’s a sad day in the
industry when the threshold for success is not going out of business.”

The ATA said that as of May, jet fuel prices were outpacing domestic fare increases: the average
domestic passenger revenue yield was up by about 11% at $12.87/revenue passenger mile and jet fuel
prices increased by 30% at $1.95/gallon.
To remain competitive, airlines are reluctant to pass on the cost of fuel to customers through higher
fares, Heimlich said.
Instead, the airline industry is turning to cost-cutting methods such as measures to make sure each
passenger seat is filled; accelerating the retirement of older, less fuel-efficient airplanes and planning to hedge once
airline credit retains good favour, Heimlich said.

The ATA also advocates air traffic control reform to make routes more fuel-and time-efficient.

A busy hurricane system could devastate the airline industry, Heimlich said. In addition to rising jet fuel
prices, the industry must seek fuel that competes with other products in multi-line pipelines and it was dealing with a squeeze in US refining rates. The damage from last year’s hurricanes Katrina and Rita eliminated 25% of the daily jet fuel production, the ATA said.

“I don’t expect any large carriers to go out of business this year,” Heimlich said. But he added an active
hurricane season could change that prospect.

ICIS Copyright © Reed Business Information 2006


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