U.S. airlines are grappling with soaring jet fuel costs again after the return of hostilities in the Middle East shattered the three-week-long U.S.-Iran ‘deal to make a deal’ and sent Brent crude oil prices soaring past $100 per barrel again.
The U.S. jet fuel market has been tightening since March, although there haven’t been concerns about any shortages in America, unlike in Europe, which in April was supposed to run out of stockpiles within six weeks.
Europe didn’t see shortages, but the global markets tightened, and prices spiked amid peak seasonal demand during the summer holiday travel.
U.S. jet fuel exports, and exports of all other fuels including gasoline and diesel, hit record highs this month as refining margins soared with crude supply still constrained at the Strait of Hormuz.
The result is spiking fuel costs that depress airline earnings and raise air fares for consumers.
Jet fuel stocks at the U.S. West Coast were most under stress in the spring as the region relies more on imports than the other PADDs.
Therefore, in a first, Southwest Airlines chartered a vessel to ship jet fuel from Houston to Los Angeles via the Panama Canal.
“It brought like a week’s supply to the West Coast at a time when supply was most constricted … when it was most at risk,” Southwest Airlines chief financial officer Tom Doxey told CNBC this week.
The shipment was made possible by the Trump Administration’s waiver of the Jones Act, which temporarily suspends the requirement that shipments between U.S. ports be carried on a U.S.-owned, flagged, and crewed ship.
The shipment of about 12.6 million gallons of jet fuel arrived in Los Angeles at the end of May, as Southwest sought to ease upward pressure on jet fuel prices.
Related: US Oil Drillers Take A Break As Oil Prices Hover Near $100
A lot has happened in the two months after the end of May, with oil and fuel prices easing for about three weeks during which the U.S.-Iran memorandum of understanding held. The collapse of the MoU and the end of the ceasefire reignited the crude and fuel price rallies, further bloating airline fuel costs and forcing U.S. air carriers to revise down earnings expectations despite strong summer demand.
Fuel costs are one of the biggest expenses for airlines, and the fuel price rally in the past two weeks prompted all U.S. carriers to adjust their 2026 earnings expectations lower.
Southwest this week reported consensus-beating earnings for the second quarter, but noted its fuel expenses jumped by $900 million year-over-year.
