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<\/a><\/p>\nThe product market came under more severe stress than the crude markets as the war dislocated oil and fuel supplies and sent jet and diesel premiums over Brent to astronomical highs. \u00a0<\/p>\n
Nowhere has the stress been more severe than in jet fuel cracks and prices, signaling acute price pain for airlines and consumers going forward.\u00a0\u00a0\u00a0<\/p>\n
The specifics of producing and storing jet fuel compared to other fuels made the kerosene market the most vulnerable to the major shifts in physical supply seen over the past weeks, analysts say.<\/p>\n
Jet fuel is the most stressed barrel, June Goh, Senior Oil Market Analyst for Sparta Commodities,\u00a0says<\/a>, noting that jet fuel has very specialized tank storage requirements and there isn\u2019t much of it stored globally, unlike many other products such as diesel and gasoline.<\/p>\n Due to these storage constraints, jet fuel supply was the hardest hit at the start, Goh said at the end of last week.<\/p>\n \u201cNo alternatives for production and no strategic storage. Some airlines are forced to induce demand destruction. Prices have doubled,\u201d the analyst noted<\/a>.<\/p>\n Related: Chinese Publication Claims U.S. Has Two Months of Rare Earths Left<\/a><\/p>\n Even if the Strait of Hormuz were to open unconditionally to all traffic today, the global oil production and refining supply chains would take at least three to six months to normalize to pre-war levels, Goh said<\/a> in an analysis last week.<\/p>\n The damage is done, and it will take months to return to normal, if \u2018normal\u2019 could be applied to global oil flows from now on. Until some kind of \u2018normal\u2019 returns, the most stressed barrels \u2013 jet and diesel fuels \u2013 would become even more stressed as Asia reduces refinery runs and exports. while storage, where available, is being aggressively tapped.<\/p>\n \u201cA global jet supply crunch is emerging with no clear relief mechanism,\u201d James Noel-Beswick, Head of Commodities at Sparta, said<\/a> in the commodity analytics firm\u2019s trading outlook for April.<\/p>\n The market is signaling \u201ca genuine shortage with limited ability to rebalance\u201d as all major arbitrage windows into Europe and Los Angeles are closed despite extreme pricing and U.S. Gulf jet barrels are already stretched, Noel-Beswick added.\u00a0<\/p>\n Fatih Birol, the executive director of the International Energy Agency (IEA), also noted that jet fuel and diesel are the most stressed barrels in global markets today.<\/p>\n \u201cThe biggest problem today is the lack of jet fuel and diesel; these are the main challenges and we are seeing it already in Asia, but soon, in April, or maybe beginning of May, it will come to Europe,\u201d Birol said this week on the \u2018In Good Company\u2019 podcast<\/a> hosted by Nicolai Tangen, the CEO of Norway\u2019s sovereign wealth fund, the world\u2019s biggest.<\/p>\n Airlines Feeling the Pinch<\/p>\n The jet fuel supply crunch is reverberating through Asia Pacific airlines and is already piling pressure on European air carriers, too.<\/p>\n Australia\u2019s Qantas raised<\/a> international fares in early March, becoming one of the first major airlines to hike prices.<\/p>\n The more than doubled jet fuel prices are driving up costs across the group, despite hedging, Qantas said.<\/p>\n South Korea\u2019s flag carrier, Korean Air, is now in emergency mode<\/a> in response to soaring costs.<\/p>\n Jet fuel is the highest cost for airlines, and \u201cthe most damaging episodes occur when fuel prices rise rapidly, and airlines do not have time to adapt their strategy,\u201d the International Air Transport Association (IATA) said<\/a> two weeks after the war in the Middle East began.<\/p>\n \u201cRapid changes qualify as shocks and are hard to adjust to,\u201d said the IATA.<\/p>\n Airlines in Asia are already grounding flights, while European carriers start to fret about a true jet fuel scarcity going into May and beyond.<\/p>\n \u201cWe don’t expect any disruption until early May, but if the war continues, we do run the risk of supply disruptions in Europe in May and June, and we hope the war will finish sooner than that and the risk to supply will be eliminated,\u201d Ryanair CEO Michael O\u2019Leary told Sky News<\/a> on Wednesday.<\/p>\n Ryanair, one of Europe\u2019s biggest budget airlines, is \u201creasonably well hedged\u201d on 80% of its fuel, O\u2019Leary said, but noted that it is paying nearly double at around $150 a barrel on the other 20% of fuel supply.<\/p>\n Meanwhile, the biggest European aviation group, Lufthansa, is developing crisis plans depending on the severity of the price surge and fuel crunch, and prepares to ground about 5% of capacity, or about 40 aircraft, a company spokesman told Bloomberg<\/a> this week.<\/p>\n The jet fuel situation will worsen in the coming weeks, and even if the Strait of Hormuz were to re-open unconditionally to all traffic today, it would take months for oil and fuel markets to return to some semblance of normality.<\/p>\n \u201cThe market is going to continue to get tighter,\u201d Edward Morse, a commodities strategist at Hartree Partners, told<\/a> the Financial Times.\u00a0<\/p>\n By Tsvetana Paraskova for Oilprice.com<\/p>\n More Top Reads From Oilprice.com<\/p>\n <\/p>\n","protected":false},"excerpt":{"rendered":"Soaring jet fuel prices have hit the profitability of airlines, who have started raising air fares and 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