Jet fuel prices tumble on prospect of renewed Gulf exports

Roula Khalaf, Editor of the FT, selects her favourite stories in this weekly newsletter. Jet fuel prices have tumbled as traders prepare for a resumption of exports from the Middle East, bringing relief to airlines facing billions of dollars in extra costs. The north-west European jet fuel benchmark sank as low as $957 a tonne this week according to data from Argus Media, down nearly 50 per cent from its peak in early April, in a rapid sell-off sparked by the US-Iran ceasefire deal that is expected to restore energy flows through the Strait of Hormuz. Singapore jet fuel prices fell to their lowest level since the start of the war on Thursday. On the US Gulf Coast, prices also dropped to their lowest level since early March. Jet fuel prices more than doubled after the outbreak of the conflict led to the closure of the strait, a vital waterway for exports of oil and refined products from the Gulf, sparking warnings that flights could be grounded during the key holiday season as supplies ran dry. As prices rose, the US and Nigeria began exporting more jet fuel to Europe and Asia, while refineries across the world fired up production. Airlines have since rowed back on warnings, with British Airways and Air France saying they have enough supplies for their entire summer season, even though the global industry expects its fuel costs to rise by $100bn this year. Now, traders said that renewed flows from the Middle East could cause a temporary glut because some carriers had already cut flights and refineries had cranked up production. One senior jet fuel manager said the market was anticipating the release of cargoes trapped by the conflict, which are "only 30 days away". In the meantime, rising US exports and refinery output meant there was "plenty of jet fuel available", he said. The sharp drop in prices -- which nevertheless leaves jet fuel in Europe about 17 per cent more expensive than it was before the war -- marks a relief for carriers hit by the crisis. The IEA warned in April that Europe had "maybe six weeks of jet fuel left", Lufthansa cut 20,000 flights between May and October, while Delta Air Lines reduced services by 3.5 per cent. Airline executives had warned of even steeper cuts to flights this winter -- and job losses across the industry -- if fuel prices remained elevated going into the winter months. But high jet fuel prices -- and a ballooning gap between prices of refined products and crude oil -- encouraged refiners to maximise output. US refiners boosted production so aggressively that crude inventories fell to their lowest level since 1985 last week as refineries drew down stockpiles, according to the US Energy Information Administration. According to the International Energy Agency, about 60 per cent of the lost Middle Eastern jet fuel supply to Europe was offset by increased production from the US and Nigeria. A reduction in demand from China also helped avert severe shortages, according to Eugene Lindell, an analyst at energy consultancy FGE NexantECA. Weak domestic demand and reduced crude imports "basically balanced the market", Lindell said. Despite the fall in prices, analysts warn supplies remain vulnerable to further disruptions, particularly in Europe. Amaar Khan of Argus Media said the continent's inventories remain "heavily depleted", with producers likely to prioritise deliveries to the tight European market instead of replenishing stocks.