Jet fuel bidding war breaks out as airlines face global stress test
Europe is urgently turning to alternative suppliers of jet fuel as imports from the Middle East remain knocked out — but the continent must “fight for every cargo” in what analysts have dubbed a “global stress test” for the airline industry.
The loss of Middle Eastern jet fuel because of the Iran war is quickly becoming an acute logistics problem for Europe, according to analysts at Societe Generale.
The continent’s average daily demand of about 1.6 million barrels of jet fuel a day is typically met primarily through domestic production, at 1.1 million barrels per day.
But the additional 500,000 barrels is met via imports — three-quarters of which traditionally arrived from the Middle East, SocGen analysts said in a note Monday.
That supply has largely dried up since the Strait of Hormuz shipping channel effectively closed after the U.S.-Iran conflict started on Feb. 28.
While jet fuel remains available, it is “nowhere near” what is needed to replace supplies normally imported by Europe from the Gulf, said Benedict George, head of European product pricing at Argus.
“While we can import more, and we are, from the U.S. and Nigeria, we have to fight for every cargo that’s going to come,” George told CNBC’s “Squawk Box Europe” on Monday. “We have to fight against Singapore, against Australia — and the price…just goes higher and higher.”
Alternative sources
Before the start of the conflict, about 360,000 barrels of jet fuel were typically moved through the Strait of Hormuz every day — representing about 20% of shipped global flows.
The U.S. is emerging as a key source for Europe. U.S. global exports of jet fuel have gone stratospheric, soaring to a record 442,000 barrels a day in early April, or about 372,000 barrels over a four-week average, according to SocGen.
That’s about 200,000 barrels a day more than the five-year norm of 172,000 barrels a day. The U.S. has historically exported to about half of this to its neighbors Mexico, Canada and Panama — but now Europe is battling for this jet fuel too.
Before the war, Europe typically received between 30,000 and 60,000 barrels a day from the U.S. That’s since surged to about 200,000 barrels a day. But a Middle East deficit of about 53% of normal flows, or 175,000 barrels a day, remains.
International Consolidated Airlines Group.
“Europe would therefore need to bid harder for additional cargoes to maintain summer inventories,” SocGen analysts led by Mike Haigh, head of FIC and commodity research, said in the note published this week.
Across Europe’s six biggest jet fuel consumers — the U.K., Germany, France, Spain, Turkey and Italy — domestic output meets about 63% of their combined demand, which totals roughly 1.1 million barrels per day, SocGen said.
But reliance on domestic refining versus imported jet fuel differs sharply. Spain, for example, is typically a net exporter of jet fuel, while the U.K. — Europe’s largest consumer — depends heavily on imports,…
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