Financial Watch: Jet Fuel Prices Surge, Impacting the Global Aviation Market

How the Middle East situation triggers a chain reaction of rising global jet fuel prices?

[Global Times Special Correspondent Ren Zhong] The current situation in the Middle East severely disrupts global energy supply, with the pressure on the aviation industry being particularly notable. According to a report by Yonhap News on the 27th, data from the International Air Transport Association (IATA) shows that from the 14th to the 20th, the average price of aviation fuel in the Asia-Pacific region was $204.95 per barrel, an increase of 16.6% compared to the previous week and a staggering 129.8% rise from the average price last month. According to The New York Times, the rate and extent of the rise in jet fuel prices far exceed the global oil price benchmark, Brent crude. Last Thursday, the settlement price for Brent crude was $108.65 per barrel, having risen about 50% since the outbreak of the conflict in the Middle East.

The higher increase in jet fuel prices is mainly due to two factors: First, the quality standards for jet fuel are stricter than for other fuels and must be stored in specialized tanks, which are costly to maintain and cannot be stored for long periods, resulting in a small buffer in inventory. Secondly, oil-producing countries are often not the refining countries. For example, South Korea is a major exporter of jet fuel but relies heavily on imported crude oil, a significant portion of which must pass through the Strait of Hormuz.

Currently, governments in various Asian countries have taken precautionary measures to avoid a shortage of jet fuel. The New York Times reports that countries like South Korea and Thailand have begun to impose export restrictions. The Bangkok Post states that increasing signs indicate that in light of the Middle East situation causing oil prices to skyrocket, Asian countries are stockpiling jet fuel, reflecting the mounting pressure on the aviation industry.

The Korea JoongAng Daily reported on the 27th that major South Korean airlines will significantly raise fuel surcharges starting in April. Asiana Airlines has raised its international route fuel surcharge by over 220% compared to the previous month, and Korean Air is also expected to implement a similar increase. Additionally, due to the sharp rise in jet fuel costs, Prime Air has decided to further reduce its routes starting in May. Jin Air has decided to suspend 8 routes, totaling 45 round-trip flights, from April 4 to 30.

Similar situations have arisen in other countries; Vietnam Airlines has suspended some domestic routes, and the low-cost airline VietJet has reduced certain international flight frequencies. Air New Zealand has canceled 1,100 domestic flights. Meanwhile, Sydney Airport has warned that it cannot guarantee the normal reception of jet fuel at Australia’s largest entry port next month.

Saudi Arabia’s Arab News reported on the 27th that since the U.S. and Israel began targeting Iran, this related turmoil has led to approximately 70,000 flight cancellations, exposing the vulnerability of the global aviation network.

As jet fuel costs account for about one-third of airlines’ operating expenses, carriers have begun to pass costs onto passengers. Alton Aviation Consultancy analyzes that compared to last year, the average ticket price for seven popular routes from the Asia-Pacific to Europe in June has increased by about 70%; the average ticket price for the Sydney to London route has exceeded $1,500, nearly double that of the same period last year.

Lex Hurst, a senior oil analyst at energy analysis firm Sparta Commodities, believes that if the Strait of Hormuz remains closed, Europe will face a shortage of jet fuel supply in May. He stated that no matter what response measures European refineries take—whether increasing operating rates, delaying maintenance, or adjusting output structure to increase the proportion of jet fuel—they cannot make up for the supply gap caused by the closure of the Strait of Hormuz. The U.S. also faces potential supply interruption risks. According to data from the U.S. Energy Information Administration, by 2025, more than 18% of jet fuel consumption on the U.S. West Coast, Hawaii, and Alaska will be imported, and most of this imported jet fuel comes from South Korea.

Orkhan Rustamov, founder and CEO of commodity trading company Alkagesta, stated that even if the situation in the Middle East eases, the jet fuel market will not immediately recover. He told Bloomberg, “The normalization of trade flows, refinery adjustments in production, and airlines rearranging flight schedules all take time, and the entire process has a significant lag effect.”