Jet Fuel Volatility Creates Fresh Cost Risks For Airlines

(MENAFN- Bangladesh Monitor) Geneva: Airlines are facing growing uncertainty over fuel expenses as structural changes in global refining markets weaken the traditional link between crude oil and jet fuel prices, according to an industry analysis by International Air Trans-port Association (IATA).

Jet fuel remains the largest operating cost for carriers and typically trades at a premium to crude. That difference, known as the jet fuel crack spread, has historically moved closely with crude prices, allowing airlines to manage much of their exposure through oil markets.

That relationship has become less reliable since the post-pandemic recovery in oil demand. The average crack spread is now more than USD 12 per barrel above its pre-Covid level, while price swings have also become harder to predict.

A major factor is the gradual reduction of refining capacity, particularly in developed markets. As some regions become more reliant on refined-product imports, supply disruptions in producing areas can have a greater effect on local fuel prices.

The International Maritime Organization's 2020 low-sulfur shipping rules have added another layer of pressure. The regulations increased demand for middle distillates, a group that includes diesel and jet fuel, supporting higher premiums for these products.

Diesel markets are particularly important because diesel profitability strongly influences refinery operations. Disruptions in diesel supplies can therefore tighten jet fuel availability and push prices higher.

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