FocusEurope jet fuel market set for demand fall

13 August 2008 15:11  [Source: ICIS news]

By Alex Davis

 

LONDON (ICIS news)--The jet fuel market is bracing itself for an unprecedented fall in demand following reports that there will be 59.7m fewer seats on commercial flights in the fourth quarter year on year, a drop of 7%.

 

“The worst-case scenario is a return to the market conditions following the 9/11 terrorist attacks,” said one market participant on Wednesday in response to forecasts from the Official Airline Guide (OAG).

 

After the 2001 terrorist attacks in New York, the airline industry saw commercial demand evaporate, prompting a 5% drop in flight capacity, according to the OAG.

 

 European jet fuel prices tumbled from $294.50/tonne (€197.32/tonne) on 11 September 2001 to a three-year low of $171.50/tonne by December of that year. They didn’t recover until December the following year.

 

The issue this time was the forecast drop in global seating capacity.

 

This summer, usually a boom time for jet fuel, has been unseasonably quiet with the global economic slowdown prompting many holidaymakers to stay at home.

 

In addition, despite crude oil’s recent $30/bbl drop, the spot price for northwest Europe jet fuel cargoes was still more than $1,100/tonne.

 

“It’s a very quiet market at the moment. People are trying to sell, but nobody’s too desperate to buy,” one trader said.

 

“Tanks are empty at the moment, so people are happy to stockpile. However, building up stocks is not the preferred long term option.”

 

There was a possibility that the dramatic reduction in seating could result in renewed demand, and if crude oil prices continued to fall so too would spot prices for jet fuel.

 

An airline business consultant said: “With the current global economic conditions, of course demand will be lower.

 

“We have already seen a substantial cutback [in flight capacity]. We do not know, however, if these cutbacks will be sufficient to dictate price or maintain demand.

 

‘There are just so many variables. For instance, speculators have been a big influence on pushing up prices, with paper trading being 10 to 15 times higher than physical prices. Oil also continues to be extremely volatile, affected lately by the conflict in Georgia.”

 

The picture for jet fuel in the fourth quarter was seen to be more unclear than bleak.

 

“People are waiting right now to see how things are going to go. Nobody knows what’s going to happen,” the trader added.

 

($1 = €0.67)

 

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By: Alex Davis
+44 20 8652 3214

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