Jet fuel bidding war breaks out as airlines face global stress test
Europe is urgently turning to alternative jet fuel suppliers as imports from the Middle East are insufficient; but the continent must “fight for every cargo” in what analysts call a “global stress test” for the airline industry.
The loss of jet fuel in the Middle East due to the Iran war is fast becoming a serious logistics problem for Europe, according to analysts at Societe Generale.
The continent’s average daily jet fuel demand of 1.6 million barrels is generally met by domestic production of 1.1 million barrels per day.
But three-quarters of the additional 500,000 barrels are traditionally met through imports from the Middle East, SocGen analysts said in a note published Monday.
That supply has largely dried up since the effective closure of the Strait of Hormuz shipping channel following the start of the US-Iran conflict on February 28.
Benedict George, Argus’s head of European product pricing, said that while jet fuel was available, it was “not even close” to the fuel normally needed to replace the supplies Europe imports from the Gulf.
“Even though we can import more from the United States and Nigeria, we have to fight for every cargo that comes in,” George told CNBC’s “Squawk Box Europe” on Monday. “We have to fight against Singapore and Australia, and the cost is getting higher and higher.”
Alternative sources
Before the start of the conflict, approximately 360,000 barrels of jet fuel were transported through the Strait of Hormuz each day; this represented approximately 20% of global flows shipped.
The United States is emerging as an important resource for Europe. U.S. global jet fuel exports rose to a record high of 442,000 barrels per day in early April, or about 372,000 barrels per day on a four-week average, according to SocGen.
That’s about 200,000 barrels more than the five-year norm of 172,000 barrels per day. The United States has historically exported about half of that to neighbors Mexico, Canada, and Panama; But now Europe is also struggling for this jet fuel.
Before the war, Europe received an average of 30,000 to 60,000 barrels of oil per day from the United States. This figure has since increased to approximately 200,000 barrels per day. But a deficit of about 53% of normal flows, or 175,000 barrels per day, remains in the Middle East.
International Consolidated Airlines Group.
“Europe will therefore need to bid higher for additional cargoes to maintain summer stocks,” SocGen analysts led by FIC and head of commodity research Mike Haigh said in a note published this week.
Domestic production in Europe’s six largest jet fuel consumers – Britain, Germany, France, Spain, Turkey and Italy – meets about 63% of total demand, amounting to about 1.1 million barrels per day, SocGen said.
However, there are big differences between dependence on domestic refineries and dependence on imported jet fuel. For example, Spain is a net exporter of jet fuel, while the UK, Europe’s largest consumer, is heavily dependent on imports and sources around 65% of its needs from abroad.
Even net exporters of jet fuel, such as the Netherlands, are not immune from the impact of rising prices, George said.
While some Asian countries already protect consumers by restricting jet fuel exports, the United States has not followed suit.
“U.S. consumers and U.S. airlines are competing with Europeans, Singapore, etc. for American jet fuel,” George said.
‘Existential’ challenge
The International Energy Agency reported earlier this month that Europe Jet fuel will run out within weeks.
SocGen analysts warned that hedging price risk among airlines may not be enough if physical fuel becomes truly scarce.
“The distinction is critical,” they said. “Paying more for energy is manageable; not having energy is existential.”
George said shortages are not yet imminent because fuel stocks are still available, but airlines must strike a balance between maintaining their market share and trying to recoup the cost of fuel.
“At some point, airlines will anticipate that if they pass this fuel cost on to consumers, they won’t be able to fill the plane,” he said. “This can be quite different for each airline.”
Increased jet fuel costs resulting from higher oil futures may be passed on to consumers through higher fees and other surcharges. But SocGen analysts added that flights canceled due to fuel unavailability would be a “very different and much more devastating outcome.”
Lufthansa.
The prospect of sweeping cancellations looms large across the continent, coupled with steep price increases on remaining routes. Lufthansa Nearly 20,000 flights were canceled last week, which was said to save more than 40,000 metric tons of jet fuel.
A Lufthansa spokesperson told CNBC that it expects “a largely stable fuel supply” for the summer schedule.
“Lufthansa is working on various measures to achieve this, such as ensuring the physical supply of kerosene and maintaining prices. As a general principle, our hedging strategy is designed to ensure planning stability, not to completely eliminate market risk,” they said.
The German airline has hedged around 80% of its requirements for 2026 and around 40% for 2027 at pre-crisis price levels. “With this level of hedging, we are in a better position than most of our competitors,” the spokesman added.
a spokesperson IAG The owner of British Airways, Aer Lingus and Iberia said: “We are not seeing disruptions to jet fuel supplies, but fuel prices have risen sharply and despite our hedging strategy providing some short-term mitigation, we are not immune from the impact.
“Our airlines will continue to monitor and respond to the situation and as long as these pressures persist, government flexibility, including the easing of slots, will ensure airlines can continue to operate as efficiently as possible and manage ongoing cost challenges while keeping people and business moving.”
EasyJet said it was not currently seeing “any disruption to fuel supply” and its flights continue to operate normally.
“We have always focused on keeping fares low and have already confirmed that we will not be adding surcharges to pre-booked flights, package holidays or future bookings for this summer,” an EasyJet spokesperson told CNBC.
A spokesman said the “sharp and sudden” rise in fuel prices had prompted Air France-KLM to increase ticket prices and make a number of adjustments to flight schedules in the coming months.
Economy fares increased by 100 euros for long-haul roundtrip flights, and by 70 euros for flights to the USA, Canada and Mexico. Fares for short and medium-haul flights in economy class have been increased by 10 euros round trip.
“We are constantly analyzing and monitoring the situation in the coming months, as well as various scenarios that could affect our operations, including the blockade of the Strait of Hormuz, as well as the reopening of the Strait.”
Wizz Air The London-listed low-cost Hungarian carrier plans to increase its schedule this summer by 17% compared to last year, CEO József Váradi said on Monday. Váradi added that 70% of its fuel for the summer period was preserved and said that the airline did not expect to run out of jet fuel.
But analysts at Morningstar warned that Wizz Air has the lowest fuel margin buffer of all Europe’s publicly traded major carriers. ryanairrather, it has a “high” hedge of around 80% for the entire year.
