Jet fuel prices have significantly declined as traders anticipate a resumption of exports from the Middle East following a US-Iran ceasefire deal expected to reopen energy flows through the Strait of Hormuz. The north-west European jet fuel benchmark dropped to as low as $957 a tonne this week, roughly a 50 percent decrease from its peak in early April. Similar declines were observed in Singapore, where jet fuel prices reached their lowest point since the onset of the conflict, and on the US Gulf Coast, where prices fell to levels not seen since early March.
The initial surge in jet fuel prices—more than doubling after the conflict led to the closure of the Strait of Hormuz—raised concerns over potential disruptions to air travel, particularly during crucial holiday seasons. The strait serves as a key route for exports of crude oil and refined products from the Gulf region. In response, the US and Nigeria increased their jet fuel exports to Europe and Asia, and refiners worldwide stepped up production to mitigate shortages.
Despite earlier warnings from airlines about possible flight cancellations and significant operational challenges, some carriers, including British Airways and Air France, have since expressed confidence in having sufficient supplies to cover their summer schedules. Nonetheless, the aviation industry still anticipates a substantial rise in fuel expenses, with estimates suggesting an increase of approximately $100 billion this year.
Market participants note that the potential return of Middle Eastern jet fuel supplies could create a temporary surplus, as some airlines have already reduced flight capacities and refineries have boosted output. A senior jet fuel manager indicated expectations for the release of cargoes delayed by the conflict within the next 30 days, while current elevated US exports and refinery production have resulted in a relatively ample availability of jet fuel.
Although prices have decreased sharply, jet fuel in Europe remains roughly 17 percent more expensive than pre-conflict levels. The International Energy Agency had previously warned in April that European jet fuel reserves might last only about six weeks if disruptions persisted. Airline executives had cautioned that sustained high fuel prices could lead to deeper flight reductions and job losses during the approaching winter season.
The rise in jet fuel prices earlier in the year incentivized refiners to maximize production, leading to aggressive output increases, particularly in the United States. The US Energy Information Administration reported crude oil inventories falling to their lowest point since 1985, as refineries drew down stockpiles to meet demand. The International Energy Agency highlighted that increased production from the US and Nigeria compensated for approximately 60 percent of the jet fuel supply lost due to the reduction of Middle Eastern exports to Europe.
Overall, the recent price decline offers partial relief to airlines affected by the crisis, though uncertainties remain regarding the stability of supply chains and the ongoing geopolitical situation influencing the global energy market.