Episode summary
Refining margins are pushing fuel prices to record all-time levels, says Barclays' Brandon Oglenski
Summary
Brandon Oglenski argues that the surge in diesel and jet fuel is being driven less by crude oil itself and more by refining bottlenecks. He says kerosene, heating oil, diesel and jet fuel are all tight because global refining capacity has been reduced, and that those refining margins are pushing prices to record levels. He adds that the impact is uneven: freight operators can often pass fuel surcharges through to customers, while airlines face a tougher mix of higher costs, fare pressure and balance-sheet strain.
He says the airline industry is already showing that split. Oglenski points to JetBlue as a company under heavy leverage pressure, while arguing that carriers with stronger balance sheets and longer duration, such as Delta, Southwest and United, should be able to work through the shock. He also says broader transport fundamentals remain healthy, with U.S. airline revenue up about 15% to 20% in the third quarter, industrial demand up 4% to 5%, and truck pricing up 15% to 20%.
On the stock side, Oglenski favors cheaper modes of transport in a high-fuel environment, especially Union Pacific, and he says FedEx is also attractive. He does not think transport indicators have lost relevance, even with AI and a more digital economy.
Key takeaways
- Brandon Oglenski says refining margins, not crude prices alone, are the main reason diesel and jet fuel are at record levels.
- He sees a split in transportation: freight firms can pass through surcharges more easily, while airlines face greater strain from fuel costs and leverage.
- Oglenski says Delta, Southwest and United should weather the fuel shock better than JetBlue and Frontier because of stronger balance sheets.
- He says U.S. transport fundamentals remain solid, citing airline revenue up about 15% to 20%, industrial demand up 4% to 5%, and truck pricing up 15% to 20%.
- Oglenski prefers Union Pacific and FedEx in a high-fuel environment because rail and scale advantages can help offset cost pressure.
Notable quotes
“THE PROBLEM IS REFINING MARGINS BECAUSE WE HAVE LESS REFINING CAPACITY GLOBALLY FOR DIESEL AND JET HAVE GONE UP PRETTY SIGNIFICANTLY”
“I WOULD JUST SAY IT'S LIKE THE CASE OF THE HAVES AND THE HAVE NOTS ON THE FREIGHT SIDE”
“FOR CARRIERS LIKE JETBLUE FRONTIER, WHERE THERE'S A LOT OF LEVERAGE, THEY REALLY NEED TO BE THINKING CAREFULLY ABOUT NEXT DECISIONS ON CAPACITY”
“I MEAN, AIRLINE REVENUE IN THE US IS UP ABOUT 15 TO 20% IN THE THIRD QUARTER”
“I MEAN, WE'VE SEEN AI IMPACT A FEW OF OUR COMPANIES LIKE C.H. ROBINSON”
How the episode opens
When you invest in alternatives wi yours. — All right. Diesel fuel continues to trade above $6 a gallon. That's according to triple a. For insight on the impact to the airline and transportation industry writ large, let's bring in Brandon Oglenski, equity research analyst covering north america airlines and transportation sector at Barclays. Jet fuel has gone up a lot more than diesel, hasn't it? Brandon.
Yeah. Joe. That's correct. Well, actually, kerosene in general, heating oil, diesel jet. The problem is refining margins because we have less refining capacity globally for diesel and jet have gone up pretty significantly. So if you just look at the cost of oil on wti or brant basis, you'd say, well, maybe diesel and jet are a problem for my companies. But really the refining margins are what pushing these prices to record all time lows.
So jet jet fuel doubled. And I guess diesel is up what, 50 or 60%. But the transportation, the freight companies just pass that right on to customers, right? So you're not really worried immediately about them. The airlines have been raising fares, obviously, but they're dealing with even even more disruption, I would think.
Well, yeah, and I would just say it's like the case of the haves and the have nots on the freight side. A lot of this is business to business transactions. So there's fuel surcharges on the business. But that's what's feeding into fears of a broader slowdown in economic spending.
Because it gets so much paying it somewhere. — Right. That's right. I mean, look, I think there's maybe a negative bias on wall street economist outlooks right now. Just saying that, hey, at some point fuel prices and then fuel surcharges that are passed along through the supply chain end up crowding out spending, which just hasn't happened yet because we're at full employment, there's wage inflation.
From the episode’s captions: roughly the first two minutes, lightly cleaned. Keep watching on YouTube →
Topics
- fuel costs
- refining margins
- airline industry
- transportation costs
- margin pressure
Companies and tickers mentioned
- BCS
- Barclays
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Summary, takeaways and quote selection by Octagon. Quotes are short excerpts; the full conversation is in the episode.
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