Jet fuel price creeping back upwards, to level of late 2014 – will it mean higher cost of fares?
The price of jet fuel rose enormously in 2008, and stayed high till falling by the end of 2014. Prices were very low in 2015, 2016 and 2017 – allowing the industry to expand and make substantial profits. But the price has been creeping back up again, especially since about September 2017. In spring 2011 the price was up to about $140 per barrel. The price of jet fuel was $76.5 per barrel on 17th November 2017, which is 35% higher than a year earlier. The price was $81.3 on 29th December 2017, which is 21.1% higher than a year earlier. The price was $85.5 per barrel (= $203.5 per US gallon) on 26th January 2018, which is 30% higher than a year earlier. Platts say: “The $2/gal mark is always a psychological barrier. It’s still far from the record high of $4.2085/gal on July 3, 2008, and below most values between then and 2014. But it shows the recovery going on in the crude market is cascading into the jet stream as well.” IATA Jet fuel price monitor anticipates the average price for 2018 as $83.1/bbl and that would have an impact on the global industry’s fuel bill in 2018 fuel bill $38.1 billion. Maybe the days of very cheap fuel are over? Will airlines then pass on the costs of higher fuel bills to passengers, in higher fares?
See data from IATA on jet fuel price at
Jet fuel prices from January 2011 to January 2018
US Gulf Coast jet fuel cash price highest since December 2014
Houston – (Platts)
25 Jan 2018
The cash price for benchmark 54 grade jet fuel on Colonial Pipeline’s prompt cycle reached its highest level in more than three years Thursday, on the back of a rising NYMEX basis contract, low stocks and low production rates.
S&P Global Platts assessed benchmark US Gulf Coast jet on scheduling day for Colonial’s seventh cycle up 75 points to the NYMEX March ULSD futures contract minus 9 cents/gal, for an outright price of $2.0204/gal. The last time it was assessed higher was December 4, 2014, at $2.0238/gal.
The price hike was partially due to a rising underlying futures contract. The NYMEX March ULSD futures contract was assessed at $2.1154/gal Thursday, and has been above $2/gal since late December.
A three-week-low jet stock level contributed to the high outright price, as well. The latest Energy Information Administration data showed Gulf Coast jet inventories drew 620,000 barrels to 13.52 million barrels and production fell 61,000 b/d to 868,000 b/d last week.
Sources attributed the drop in jet production to refiners looking to maximize diesel output over jet fuel to take advantage of attractive crack spreads.
The $2/gal mark is always a psychological barrier. It’s still far from the record high of $4.2085/gal on July 3, 2008, and below most values between then and 2014. But it shows the recovery going on in the crude market is cascading into the jet stream as well.
LIVE MARKETS – Fuel price surge spells turbulence for airlines
Jan 22nd 2018
While the New Year surge in oil prices, has buoyed global markets and energy stocks, it
isn’t good news for everyone. Airlines are one sector set to suffer from higher cost pressures.
The cost of jet fuel has increased by more than 30% in 12 months, Bernstein analysts
write. They forecast fuel costs to rise by 2.4 billion euros this year, or 14 percent.
“Rising costs are increasingly worrying airline executives as the days of cheap fuel appear
to be over,” Bernstein analysts say.
And they don’t see any chance the airlines can pass on this cost to consumers through higher fares.
“We see this translating into a very different picture for earnings at individual airlines
as differing hedging policies, profit margins and ‘locked in’ hedge prices for fuel and currency
create different levels of exposure.”
Ryanair’s fuel bill is the most sensitive to further changes in oil price, according
to Bernstein, but they reckon rising prices won’t dent margins too much because the airline has hedged its exposure at a low price so far.
Meanwhile Air France-KLM faces the largest increase in fuel prices in 2018 given
its relatively low hedging amount and after it enjoyed the lowest fuel price across the
analysts’ coverage in 2017.
The French airline is already down 3.4 % today after Davy Research analysts downgraded the stock to neutral after a strong run.
Headwinds grow for airlines as fuel costs take a toll
Cliche or not, “turbulent” is perhaps the only way to describe the airline industry’s journey in 2017 after a wave of dramatic collapses.
The failures of Alitalia, Air Berlin and Monarch exposed cracks in an aviation sector which had boomed in the post-crisis years.
But some feel the shake-out isn’t over yet and that the rising oil price – which hit the highest in more than two years at $67 this month – alongside pressures related to Brexit and competition for key staff such as pilots, could lead to more turmoil in 2018.
Wizz Air chief executive József Váradi believes the rising oil price has helped “clean the market out” but that there remained a “number of airlines that are hanging on which should not be in business”.
“There are inefficient and unproductive businesses out there losing money but have been supported by either governments, private investors or the macro environment,” he says.
“But should the oil price rise further I think it will help the industry consolidate further”.