UpdateVolcano rattles US jet fuel market, prices drop 3%

20 April 2010 00:10  [Source: ICIS news]

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HOUSTON (ICIS news)--US jet fuel prices fell around 3% on Monday, as the effects of a volcanic explosion in Iceland last week continued to cause a standstill in European air travel.

In what a US trade group called an unprecedented closure of airspace, a volcano in Iceland spouted ash clouds that have drifted across Europe, causing the largest shutdown of international airspace in years.

According to the US Air Transport Association (ATA), the UK is the third largest international destination behind Mexico and Canada for the US. The ATA is a trade group that represents the major US carriers.

Traders said that a reduction in jet fuel demand was causing supply to build up, and market players that do not have storage availability could face problems.

“Refiners are making a pretty good margin now and will continue to produce into May,” a US Gulf coast based refined products trader said.

“Long term impact … is hard to say how it will work,” the trader said.

US Gulf jet fuel prices were assessed at 214.25-214.50 cents/gal, down 7.25 cents from Friday, according to global chemical market intelligence service ICIS pricing.  

The volcano eruption in Iceland had since strengthened, and a new ash cloud was spreading south and east towards the UK, according to the country's National Air Traffic Service (NATS).

The situation for Northern Irish airports was uncertain, although airports in other parts of the UK could become available on Tuesday, the NATS said.

Earlier, officials announced a plan to partially reopen European skies to air traffic, according to news reports.

Airspace remained closed in more than 20 countries and although an uplift in some flight restrictions was expected on Monday, the outlook for jet price differentials was looking negative for the rest of the week, industry sources said.

“The biggest problem right now is if airports are not using fuel, oil refineries are still producing and shipping oil as deliveries have been planned in advance.

"Most, if not all, airport storages are full – somewhere like Heathrow has no spare capacity and as it uses a multi-product system it will have major pipeline and distribution problems,” said an airline source.

The source added that although the crisis would cause a knock-on affect on the rest of the oil industry and its logistics structure, commodities prices remained unaffected as oil was a global commodity.

“Supply and demand for jet fuel will be affected in Europe in the short-term as the market is oversupplied,” said the airline source.
Another source said the industry would be following reports on the incident throughout the day, adding: “We will have to see how the rest of this situation develops for the rest of the week and month.”

EU transport ministers were expected to hold emergency talks by video conference on Monday on how to ease the travel chaos caused by airspace restrictions.

However, the International Air Transport Association (IATA) sharply criticised European governments, accusing them of displaying a lack of leadership and risk assessment in handling the situation.

“This crisis is costing airlines at least $200m a day in lost revenues and the European economy is suffering billions of dollars in lost business,” IATA’s director general and CEO, Giovanni Bisignani, said.

“In the face of such dire economic consequences, it is incredible that Europe’s transport ministers have taken five days to organise a teleconference.”

According to the Airports Council International Europe, more than 6.8m passengers have been affected, with 313 airports paralysed so far.

The latest jet fuel barge prices were assessed by ICIS at $744.50-746.50/tonne FOB (free on board) ARA (Amsterdam Rotterdam Antwerp).

This represented a drop of $18.25 at the lower end of the range and 17.25/tonne at the upper end, from Thursday's prices of $762.75-763.75 FOB ARA.

The differentials to May ICE gasoil futures dropped from $47-48/tonne on Thursday FOB ARA to $39-41/tonne on Friday.

Additional reporting by Ila Halai and Elaine Mills and Al Greenwood

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By: Steven McGinn
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