European airlines are becoming increasingly confident the continent would avoid a jet fuel shortage this summer as refiners maximize jet fuel output and buyers diversify imports to offset supply losses from the Middle East with increased shipments from the U.S. and Nigeria.
A month into the Iran war and the Strait of Hormuz crisis, airlines, officials, and analysts started warning that Europe had mere weeks of jet fuel supply and an inevitable crunch would arrive in the middle of May, or by the end of May at the latest.
Fatih Birol, executive director of the International Energy Agency (IEA), in mid-April warned that Europe has “maybe six weeks or so” of remaining jet fuel supply.
“If we are not able to open the Strait of Hormuz … I can tell you soon we will hear the news that some of the flights from city A to city B might be canceled as a result of lack of jet fuel,” Birol told Associated Press in an interview.
Airlines have warned that their fuel costs are soaring and they would be slashing this year capacity and flights on unprofitable routes to save on costs.
Earlier this month, Lufthansa Group, Europe’s biggest airline, said it expects the surge in jet fuel prices to cost it an additional $2 billion this year as the closure of the Strait of Hormuz “is leading to a shortage in kerosene supply and thus to a significant increase in kerosene prices.”
Lufthansa last month said it would remove a total of 20,000 short-haul flights from its European summer schedule.
Air France-KLM expects its fuel bill to jump by $2.4 billion this year, $1.1 billion of which will come in the second quarter.
Yet, none of the airlines has warned of imminent jet fuel supply shortages.
International Airlines Group (IAG), the owner of British Airways, said earlier this month, “based on what we know today we are confident of jet fuel supply in our main markets throughout the summer. Today the situation is more about the price of fuel than availability.”
“If the current conflict continues to restrict flows of both crude oil and jet fuel from the Middle East, there is the potential for supplies of jet fuel to be restricted on a global basis,” IAG said.
“We are engaging with governments in each of our home markets as well as with the EU to ensure that the industry is getting the support it needs to navigate this situation.”
In addition, oil and gas majors Repsol of Spain and Galp of Portugal have maximized the jet fuel output in recent weeks, executives told the Financial Times, in a sign that oil majors and refiners are incentivized to boost kerosene production by the highest margins in years.
By Michael Kern for Oilprice.com
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