Dollar Dragged by 50 Bps Fed Cut Wagers

Economic

Summary:

The dollar stayed near yearly lows as markets anticipate a possible 50 basis point Fed rate cut, with the euro and yen remaining stable.

The dollar traded near its lowest levels of the year on Tuesday, on the eve of the expected start to a U.S. easing cycle that markets are betting may begin with an outsized rate cut.

The euro hovered around $1.1133 at 08:30 GMT, not far from the year's high of $1.1201.

The yen JPY eased back to 140.58 after a jaunt to the stronger side of 140 during holiday thinned trade on Monday.

It has fallen the most this year so has the most room to rally on a dovish turn from the U.S. central bank. A sustained break of 140.00 would open the way to a low from last January at 127.215.

Fed funds futures have rallied to push the chance of a 50 basis point rate cut to 69%, against 30% a week ago. The odds have narrowed sharply after media reports revived the prospect of a more aggressive easing. (FEDWATCH)

"Any sign of weakness in (Tuesday's U.S. economic data) is only going to reinforce market speculation that there could be a 50 basis points move," said Jane Foley, senior forex strategist at Rabobank.

August U.S. retail sales and industrial production figures are expected later today, although all eyes are on the Fed's two-day meeting which concludes on Wednesday.

"Regardless of which of -25bps or -50bps the (Fed) goes with on Wednesday, we do think that the Fed's messaging will be 'dovish,'" said Macquarie strategists in a note to clients.

"The USD could weaken against the majors on a very dovish tone, even with a -25bp cut ... the largest losses, if any, are still likely to be experienced against the JPY," they said.

"That's because the contrast between central bank outlooks will remain starkest between the Fed and the BOJ, for the time being."

The Bank of Japan is expected to keep policy steady on Friday but signal that further interest rate hikes are coming, perhaps turning the next meeting in October into a live one.

Sterling - the best performing G10 currency this year with a 3.9% rise on the dollar - has also led the charge against the dollar thanks to signs of resilience in Britain's economy and stickiness in inflation.

It broke above $1.32 on Monday, buying $1.32145 at 08:30 GMT. The Bank of England is generally expected to leave rates on hold at 5% when it meets on Thursday, though markets have priced in a 39% chance of another cut.

The Australian and New Zealand dollars also rallied through Monday and bought $0.6761 and $0.6205, respectively, on Tuesday, as traders focused more on the Fed rather than weekend signs of deepening trouble in China's sluggish economy.

Chinese markets are closed for the Mid-Autumn Festival break until Wednesday, though the yuan was firm at 7.097 in offshore trade as it settles into a new range.

The U.S. dollar index held at 100.6, not far from its 2024 low made last month at 100.51.

Source: Reuters

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Samantha Luan

Economic

The Fed is right to start a rate cut cycle. They haven’t defeated inflation yet, but they’re damn close. The big question of the week is, will it be a 25 or 50 bps cut?

I think the Fed should have cut in July and I think they actually regret having not cut in July. So there’s a pretty reasonable argument that they should cut 50bps just to make up for the mistake.

25 or 50?

We’re too busy thinking about Federal Reserve policy and whether they’ll go 25bps or 50bps at the next FOMC meeting.

As I’ve noted in the past, I think they should have cut in July and I think they actually regret having not cut in July, so there’s a pretty reasonable argument that they should cut 50bps just to make up for the mistake. That’s what I would do if I were Supreme Leader of the Fed, and I’d frame it very specifically as a catch-up rather than an emergency, but I don’t think they’ll do that. I think they’ll go 25 bps. Let me explain why.

50 bps could cause some concern.

Yes, they could cut 50 bps and frame it like I did above where the Fed comes out and clearly says “we are cutting 50 bps due to the elongated meeting schedule and to catch up on recent economic slowness, however, we are NOT, we repeat, NOT cutting due to an emergency or extenuating circumstances.”

This wouldn’t go over well. It’s basically admitting that they made a mistake in July and that they’re now behind the curve. Which they are, but they can’t admit that without potentially causing some unnecessary worries.

So I don’t think they can do this, because pessimistic animal spirits could make investors believe that the Fed knows something evil lurks under the hood.

The economy is strong. Enough.

There’s no doubt that the labor market is softening. It has been for over a year, and I’ve explained in detail how the underlying data told that story despite what the headline story said. But even the headline data is softening materially.

That said, it’s not softening so much that the Fed needs to panic.Payroll report showed all the consistent under-the-hood weakness in temporary employment, long-term employment, etc., but the headline was at 140K - not great, but not terrible.

Hourly earnings were 4.1%, which is still high by historical standards. And broader economic data is still consistent with an expanding economy. So this isn’t a panicky environment, but it is one in which a 5.25% policy rate now looks excessively tight. So starting to ease the rate down makes a lot of sense.

Inflation is still a little bit sticky.

Last Wednesday’s CPI came in at 2.5% on the headline, well down from last month’s 2.9% and way off the highs of 9%. Disinflation has clearly won now. I’ve argued for 2 years now that disinflation was embedded and that the second wave of inflation was an overblown concern.

I don’t want to toot my own horn , but our inflation model has been pretty damn good over the entirety of the Covid inflation surge. Inflation’s been stickier than I expected at points (mainly because shelter’s been stickier than expected), but directionally, the model has been pretty bang on. And right now it’s still pointing to subdued inflation. That said, there’s enough stickiness remaining in the core readings that a slower pace of cuts makes sense.

So here’s the big conclusion. The Fed is right to start a rate cut cycle. They haven’t defeated inflation yet, but they’re damn close, and you don’t want to wait until there’s an emergency to have to cut. To use the analogy I hate, you don’t start landing the plane when you’re at the airport. You start easing it down well in advance.

At the same time, inflation is still high enough and sticky enough in certain areas that moving slowly makes sense. There’s no emergency on the horizon, and so, emergency 50 bps cuts aren’t necessary at this time. So I’d expect 25 bps at the next meeting and a high probability that this is the start of a march towards something below 4% in the coming year, so I hope you locked in those high rates or extended durations earlier this year when we said it was time to do so.

Source: SEEKINGALPHA

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Thomas

Economic

Institutional investors, which have traditionally made up private debt’s largest pool of money, are no longer a source of growth for the $1.7 trillion industry.

Money raised through funds targeted to institutional investors, including asset managers and pension funds, is expected to stay flat this year compared to last, according to data from PitchBook. With institutional interest plateauing, private credit investors have to hunt elsewhere for growth. These firms have turned to vehicles designed to appeal to retail investors and insurance companies, capital pools ripe for the taking.

Investment in traditional closed-end vehicles, also known as drawdown funds, has declined steadily since 2021 and is expected to stay flat, according to the PitchBook report, which looked at global private market fundraising in the second quarter of this year. With many central banks set to cut interest rates in the near future, the appeal of private debt, which is mostly floating-rate, has decreased, the report said.

Just 59 traditional funds focused on private debt closed in the first half of the year, down from 68 in the same period in 2023, according to PitchBook. Fundraising volume shrunk to $90.9 billion from $98.9 billion over the same period.

“You are starting to approach the limit of the traditional drawdown institutional end market,” Tim Clarke, one of the authors of the PitchBook report, said in an interview, adding a caveat that data around private credit is limited and can be unreliable, given the opacity of the product.

Some private credit firms are forming open-ended, evergreen vehicles, which provide more flexibility to retail investors. Investors can periodically withdraw or contribute new capital to evergreen funds.

A handful of the market’s largest players, including Apollo Global Management Inc., BlackRock Inc. and Goldman Sachs Group Inc.’s asset management division, are already looking to raise money from retail investors in the US. Goldman Sachs and Carlyle Group Inc. are also encroaching on the European market. Apollo is going one step further, breaking ground on a private credit-focused exchange-traded fund with State Street Corp.

Though insurance companies have become a well of capital for the private credit industry, some have moved away from participating in traditional drawdown funds. Some private credit funds have tapped insurer money by striking deals to manage their assets, like Blue Owl Capital Inc., which bought Kuvare Asset Management in July, taking control of $20 billion in assets under management. Other insurance firms are investing in private credit through separately managed accounts, special one-investor funds that offer lower fees and are touted as much more bespoke.

Non-traditional fund structures like evergreen vehicles also often have lower fees. Managers including KKR & Co. and Carlyle have even taken away the carry, a performance fee, on recent evergreen funds. There’s also considerable pressure for managers of business development companies, known as BDCs, to reduce fees.

Source: The edge markets

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JPMorgan

Economic

The two main government surveys on the U.S. job market are both facing significant challenges in shedding light on this question. Since November 2021, one survey shows employment has grown by 9.6 million jobs, while the other shows a rise of just 5.9 million workers. This 3.7 million gap reflects the mixed signals the government’s monthly reports have been showing for quite some time now.

Fortunately, we have other angles from which we can assess the state of the job market. Apart from the monthly jobs report, we also get weekly updates on how many people are claiming unemployment benefits and various private sector surveys. In addition, we can look at the economic forces that typically drive employment growth to consider what should be happening to the job market, along with data that typically reflect the economic consequences of job growth.

Together, all of these perspectives constitute a mosaic that produces a much clearer picture of the labor market. So far, this picture is of an economy and labor market that is slowing rather than stalling. However, this slower-moving expansion is also more vulnerable, underscoring the need for policy makers to be particularly careful in their actions and messaging when embarking on a rate cutting cycle, and a need for investors to be extra vigilant in watching all of these labor market signals in case they more broadly turn south.

The Challenge in Measuring Jobs

Both the establishment and household surveys face significant challenges in providing an accurate portrayal of the labor market. For starters, they are both surveys rather than population counts (of roughly 119,000 companies and 60,000 households respectively), which makes them subject to sampling error. This issue, on its own, is quite significant. Indeed, because of sample size, the Bureau of Labor Statistics (BLS) estimates that it can only be 90% confident that the true number is correct within 130,000 either way of the payrolls figure and within 0.2% either way of the unemployment rate. To put this in perspective, on Friday, the BLS reported a monthly job gain of 142,000 and an unemployment rate of 4.2%. However, the BLS is only 90% confident that the true payroll gain was between 12,000 and 272,000 or that the unemployment rate was between 4.0% and 4.4%.

In addition, survey response rates for these two surveys have fallen sharply in recent years. For the household survey, the response rate has dropped from 89% to 70% over the past decade. For the establishment survey, over virtually the same period, it has fallen from 63% to just 43%. Just as in political polls, any different patterns among non-respondents compared to respondents will further erode the accuracy of the figures.

A second issue has to do with seasonal adjustment. The markets and the public rightly focus on seasonally-adjusted employment data, but these seasonal adjustments are very significant. Without them, for example, over the past 10 years, the average January would have been reported with 2.8 million fewer jobs and the average November with 600,000 more. Seasonal factors are calculated based on the seasonal patterns of previous years. However, the extraordinary swings in the data over the course of the pandemic distorted all of these patterns. In addition, the pandemic itself, by creating industry winners and losers and by changing behavior with regard to work from home likely further distorted these patterns, casting more doubt on the accuracy of these numbers.

Third, there is the issue of immigration. The household survey is bolted on to estimates of the growth in the civilian population aged 16 and older provided by the Census Bureau. However, these numbers show an increase of just 1.6 million in this population over the past year. While data on immigration and its effect on the labor force are subject to uncertainty, estimates from the CBO and Brookings suggest immigration could account for 2-3 million additional workers since 2022. A underestimation of the civilian population would help explain why the reported 0.4% increase in the unemployment rate and 0.1% decline in the labor force participation rate over the past year resulted in employment falling by 66,000 workers over the same period, which is entirely at variance with other employment measures.

It should be emphasized that none of this implies that the BLS is somehow faking the numbers or, worse still, doing so for political purposes. We firmly believe that the BLS is doing its best to honestly portray the state of the job market. However, it does underscore the need for constructing a broader mosaic of the jobs picture and assessing the signals from different vantage points.

The Government Surveys of Companies: Flashing Orange

On its surface, the August reported payroll gain of 142,000 seemed relatively benign – only slightly below the 165,000 consensus expectation and close to the 163,000 average monthly gain seen over the last decade. However, revisions further chipped away at gains for the prior two months which are now estimated at 118,000 and 89,000 respectively, bringing the three-month moving average down to a lackluster 116,000. On a more positive note, the average workweek increased by 0.1 hours and average hourly earnings climbed by 0.4%, or 3.8% year-over-year, very likely marking a 16th consecutive month of year-over-year wage gains outpacing consumer price inflation.

It is worth noting that the recent preliminary annual benchmark revision to the payroll survey subtracted 818,000 from the employment figures for the twelve months preceding March 2024. This would cut the gain in employment in that time frame from 2.900 million jobs to 2.082 million jobs and could indicate a lower trajectory on job growth since then. However, the latest revisions reflect new population estimates from unemployment insurance tax records, which likely undercount new migrants. The revised data are also subject to another revision in February 2025, and large revisions are not uncommon in this process.

A second government survey of businesses, the JOLTs report, provided further confirmation of labor market cooling with the number of job openings falling from 7.910 million at the end of June to 7.673 million at the end of July. However, while well off their peak of 12.2 million, current job openings are still higher than in any month prior to the pandemic.

The Government Household Surveys: Flashing Orange

The household survey saw modest improvement in August relative to July with the unemployment rate falling from 4.25% to 4.22% and the economy adding 168,000 workers. However, the unemployment rate has still risen significantly since hitting a 54-year low of 3.43% in April 2023, with a rising, although still very low, number of workers reporting that they worked only part-time for economic reasons.

It is important to note that while unemployment has been rising, layoffs remain at historically low levels, suggesting that this deterioration may simply be a correction from the super-hot labor market of 2022 and 2023, when many people who would normally have trouble keeping a job found themselves in employment. If so, the economy could settle in to an unemployment rate just over 4%. However, the direction of travel over the past year is still cause for some concern.

Private Surveys: Flashing Orange

In addition to the government surveys, we can look to monthly readings from a number of private sector reports. In particular,

The employment components of the ISM surveys of purchasing managers were mixed in August, with the manufacturing report showing job losses and the (much larger) service sector showing gains.The August Conference Board Survey of Consumers was generally positive, with 32.8% of respondents saying jobs were “plentiful”, exactly twice as many as the 16.4% reporting that they were “hard to get”.The monthly jobs report from the National Federation of Independent Business was also generally positive, with a net 13% of firms planning to increase rather than cut employment over the next three months and a still very elevated 40% reporting job openings they could not fill.On the more downbeat side, layoff announcements jumped to 76,000 in August from a historically low 26,000 in July according to the outplacement firm, Challenger, Gray and Christmas.

Unemployment Claims: Green Again

Weekly unemployment claims provide a further timely perspective on the labor market.

Over the summer, they did seem to suggest some reason for concern, with a four-week moving average of initial claims climbing from 210,000 at the end of April to over 240,000 by the start of August. However, some of this appears to have been due to weather effects and seasonal plant closings in the auto industry. By the end of August, the four-week moving average had fallen back to 231,000, with a similar improvement in continuing claims. Overall, initial claims for unemployment benefits are lower than they have been more than 80% of the time this century, suggesting a generally tight and healthy labor market.

The Drivers and Impacts of Job Growth: Still Looking Good

A final and important perspective on the job market comes from looking at the rest of the economy. In our medium-term forecasting models, private sector non-farm employment is positively related to current real GDP growth as well as growth in the prior two quarters. When businesses experience rising demand, they attempt to hire more workers and are more reluctant to layoff existing employees. Following slow growth of 1.4% annualized in the first quarter, real GDP growth accelerated to 3.0% in the second. The Atlanta Fed’s GDPNow model is predicting 2.1% growth for the third quarter, largely in line with our own forecasts, which suggests that there should be plenty of business momentum motivating hiring in the months ahead. This perspective is further bolstered by strong year-over-year gains in second-quarter profits according to both government and private sector reports.

Finally, we can look at the consequences of employment growth, particularly in the form of consumer spending. Following annualized gains of 1.5% and 2.9% in the first and second quarters respectively, we are now tracking a 3.2% gain in real consumer spending for the third quarter. To be sure, many families are still struggling and the public mood remains sour. However, the roads, airports, restaurants and grocery stores are generally full and online spending continues to grow. There is no sign of an employment slump in the spending of American households.

Conclusion

Putting it all together, the Jobs Mosaic suggests an economy that is, for now, settling into a slower expansion rather than anything more sinister. It should be emphasized that slow expansion is a fairly natural condition for the economy. Every morning, millions of Americans wake up willing to work more hours, wanting to buy more stuff and generally striving to get ahead.

That being said, a slower-growing economy is also a more vulnerable one and the Federal Reserve needs to be careful in both their actions and their words. The right move from here would likely be to cut the federal funds rate by 25 basis points on September 18th and justify this move by saying that a healthy economic expansion, with inflation falling towards the Fed’s 2% goal, doesn’t need monetary restraint and that it will be gradually removed over the next year or two. The wrong thing to do would be to cut by 50 basis points and express recession concerns.

For investors, it will be important to watch both the evolving jobs mosaic and how the Fed reacts to it. However, it is more important that they consider whether the sharp market moves of the last two years or any changes in their own personal circumstances justify a rebalancing of portfolios. While we are not particularly concerned about the balance of current economic data, the economy and markets are always vulnerable to shocks, and long-term financial success depends as much on being able to weather what you don’t expect as to profit from what you do.

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Warren Takunda

Economic

The Pound to Dollar exchange rate (GBP/USD) rose three-quarters of a per cent on Monday and is holding the gains on Tuesday, quoting at 1.3210, placing it 50 pips shy of the 2025 high.

Gains in GBP/USD are driven by USD weakness as markets raise expectations for a 50 basis point rate cut at the Federal Reserve on Wednesday. However, a decision to leave UK interest rates unchanged at the Bank of England on Thursday is also said to be helping.

"For now, the ramped up Fed cut expectations is having a deleterious effect on the USD broadly, and GBP/USD specifically as the BoE is expected to hold rates steady when it delivers its rate decision the day after the FOMC," says Paul Spirgel, a Reuters market analyst.

Can the Pound rally to the 2024 peak against the U.S. Dollar at 1.3270, potentially taking in even higher levels? A new research note says the GBP/USD risks stalling, meaning those looking for the best dollar rate should consider locking in part of their exposure around today's current levels.

Markets now see a 75% chance of a 50bp interest rate cut at the Fed on Wednesday, whereas this time, one week ago, the odds were at only ~30%. The ramp-up in odds for a 50bp cut followed a pair of media reports last Thursday that said a 50bp was in play, with analysts noting the close links between the author of one article in the WSJ and the Fed.

Because the report is unsubstantiated, there is a real risk of disappointment. Should a 25bp rate cut be delivered, then the Dollar can recover and GBP/USD will drop sharply. "Sterling is vulnerable should the Fed only cut 25bp," says Clyde Wardle, Senior EM FX Strategist at HSBC.

Wardle says a 25bp cut scenario would see the USD shift onto better ground, "especially given the extensive pricing for rate cuts already factored into markets and signs of excessive short USD positioning."

Money markets show there are nearly 260bp worth of cuts priced by the market by the end of 2025, while the latest IMM report shows the total net short USD position stood at its largest since August 2023.

This means the market is already betting heavily against the Dollar and Wardle says, "the Fed would have to meaningfully 'out-dove' easing expectations in terms of its dots and messaging than what the market is already pricing."

"That said, kicking off with a deeper, 50bp cut this week may – at least in the short term – could see the USD weaken," he adds.

The Bank of England decides a day later, and markets see minimal chances of a cut with a clear majority of the Monetary Policy Committee voting to keep rates unchanged.

But, currency market analysts say the Pound can come under pressure if the vote is tighter than expected.

Ahead of the Bank's decision is the release of UK CPI data on Wednesday, which Wardle thinks could alter the Bank's thinking.

"The risk is that these data soften more than expected, as other forward-looking indicators show UK price pressures abating. It is less clear what can boost GBP’s strong run further, especially when some positioning metrics suggest it is a very crowded long (i.e. record net long GBPs on IMM)," says Wardle.

With positioning in the Pound and Dollar stretched in opposite directions and the market close to fully pricing in a 50bp Fed cut and no action at the Bank of England, the impetus needed to clear the 1.2275 hurdle in GBP/USD is immense.

Source: Poundsterlinglive

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Alex

Cryptocurrency

As bitcoin mining undergoes major changes, the GCC region can have an important role in the transformation, which is being driven by a focus on renewable energy and new technology.

Abdumalik Mirakhmedov, executive president of GDA, one of the world’s largest bitcoin mining companies in terms of hash rate, says strong government support, an abundance of capital, and a commitment to sustainability are positioning the region as a growing force in the sector.

“Governments across the region are demonstrating enthusiastic support for the growth of bitcoin mining, recognizing its potential to drive broader sector development,” said Mirakhmedov, speaking from GDA’s Dubai office. “They are ramping up their green energy initiatives in a move that could propel the region to the forefront of sustainable bitcoin mining, and potentially secure a significant portion of the network’s hash rate.”

The UAE’s estimated 400 megawatts of bitcoin mining represent around four per cent of the global bitcoin mining hashrate, according to data from the Hashrate Index. The Oman government’s investment of more than $800 million in crypto-mining operations has also been widely reported.

“A common misconception about bitcoin mining is its purported dependence on fossil fuels and consequent environmental impact, but this outdated view no longer reflects reality,” said Mirakhmedov. “Current data shows that renewable energy sources now power more than 55 per cent of all bitcoin mining operations globally. Hydroelectricity, wind, and even captured methane gas have become go-to power sources for mining operations. This shift isn’t temporary, but indicative of a long-term trend, as renewable energy costs continue to decline, making them the obvious choice for miners worldwide,” he added.

Meanwhile, the adoption of advanced cooling technologies, such as liquid and immersion systems, promises to revolutionise operations, boosting energy efficiency and reducing costs. “As these technologies become more widespread, they’ll further enhance the sustainability of mining practices,” says Mirakhmedov.”

“While bitcoin mining strives to reduce its carbon footprint further, there are other benefits resulting from the industry’s ingenuity.

“In Sweden, for instance, the excess heat from mining rigs is being used to warm greenhouses and de-ice vehicles, turning what was once waste into a valuable resource. This kind of innovation will help secure the industry’s future, and the GCC region can play a big part in that.”

One of the world’s most experienced industrial-scale bitcoin mining companies, GDA operates 20 data centres across North America, South America, Europe, and Central Asia.

Source: khaleejtimes

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Alex

Commodity

Energy

Jet fuel production in the U.S. increased from pre-pandemic levels to 1.9 million barrels per day at the beginning of August, an increase of 8% compared to 2023

Over the summer, crude oil refiners ramped up activity to keep up with increased demand while closely monitoring the hurricane season through November 30

As people across the United States hit the road and jumped on planes this summer, gasoline demand surged. In July, demand reached 9.4 million barrels per day, equivalent to 395 million gallons per day, its highest levels since 2019, according to data from the Energy Information Administration (EIA). Strong consumption of oil coupled with the tightening of inventories could keep gasoline prices elevated for the remainder of the year.

Jet fuel production in the U.S. also soared from pre-pandemic levels to 1.9 million barrels per day at the beginning of August, an increase of 8% compared to the year prior. The Transportation Security Administration (TSA) checkpoint passenger travel numbers from January through July 2024 showed an increase of 6.2% compared to the same period in 2023, signaling a swift recovery in the civil aviation sector.

Gasoline demand topped initial projections this year. The AAA projected 70.9 million individuals will have traveled 50 or more miles from home over the summer, an increase of 5% compared to 2023. Meanwhile, Labor Day domestic travel bookings were up 9% over 2023, according to AAA.

In efforts to meet the higher demand for air travel, industry trade organization Airlines for America projected that U.S. carriers would provide an additional 26,000 scheduled flights per day, up nearly 1,400 a day from the summer of 2023. In July, North American carriers saw a 4.9% year-on-year increase in demand over the same period in 2023, according to the International Air Transport Association (IATA).

Despite the hurricane season getting off to an early start, gasoline prices in the Gulf Coast remained steady after Beryl, a Category 1 storm, reached landfall in Texas on July 8.

Lower Gasoline Prices Held Over Summer

The price of gasoline is predominantly underpinned by crude oil, as it is the primary driver, accounting for approximately 60% of the cost. The remaining 40% of the price is determined by refinery operations and distribution costs, and state and federal taxes. Front-month RBOB Gasoline futures prices averaged $2.31 per gallon in August 2024, $0.51 cents per gallon lower than they were during the same period a year prior. Gasoline prices in 2024 are expected to remain relatively flat with slower but consistent economic growth, according to the EIA.

Why Jet Fuel Demand Soared This Summer_1

Although jet fuel is a smaller component of the refined product mix than gasoline or other distillate fuel products, it has a significant impact on the economy. All civil aviation activity contributes about 1.3% of GDP, $535 billion in economic activity and 2.6 million jobs, according to the Federal Aviation Administration (FAA). Fuel is one of the largest, most variable expenses for airlines and represents approximately 15-20% of costs that impact the price of a passenger ticket. According to the most recent data from the Bureau of Transportation Statistics, the average price of a domestic airfare was $388 in Q1 2024 compared to $382 in Q1 2023.

Why Jet Fuel Demand Soared This Summer_2

Over the summer, refiners ramped up activity to keep up with increased demand while closely monitoring the hurricane season from June 1 to November 30, which could affect supply and contribute to price volatility in the future.

U.S. crude oil refiners expect to operate at approximately 90% of their combined processing capacity in the third quarter of this year. The largest U.S. refiner, Marathon Petroleum (MPC), said in August, it ran its refineries at 97% of their combined 3 million barrel-per-day capacity during the second quarter, compared to 82% in the first quarter, after their largest planned maintenance quarter in history. Marathon is positioned to run refineries at 90%, and Valero (VLO) at 92% of combined capacity in the third quarter.

In line with seasonal norms, gasoline inventories rose in the winter of 2023 in anticipation of the summer peak driving demand. Inventories took a steeper dive during the peak driving season this summer, decreasing by 3.7 million barrels to 223.8 million barrels at the end of July, 3% below the five-year average.

As gasoline transitions into the fall period, it could also be a key factor in campaigns during the upcoming U.S. election cycle. Given the upcoming uncertainty, demand for risk management in both jet fuel and gasoline markets is likely to remain strong.