Jet fuel demand slashed by European flight ban
London, 19 April (Argus) — European jet fuel demand has plunged as a massive cloud of ash produced from a volcanic eruption in Iceland continues to clog European airspace.
European jet prices have fallen by more than $30-35/t since 15 April, and are expected to fall further.
Around 150,000t (1.2mn b/d) of jet fuel is used daily in flights from Europe, and almost 40pc of flights have been cancelled in the last five days, resulting in a loss of almost 300,000t of demand.
The crisis will encourage refiners to blend jet fuel into diesel as jet fuel demand and prices remain low.
Airspace closures and the resultant impact on jet demand come at a time when the jet market is already weighed down by sluggish demand and ample supply.
The European jet fuel market was quiet today with no traders showing firm levels.
Jet swaps were trading almost $4-6.50/bl lower than the previous close today. May jet swaps were trading at a $45-47/t premium to Ice gasoil futures at 13:00 BST (12:00 GMT), compared with $52-53/t on 16 April. June swaps were seen at premiums of $50/t compared with $54/t on 16 April.
Barge differentials weakened on 16 April, and are expected to slide further on the spot market. Dutch airline KLM and Germany's Lufthansa are trying to sell product to compensate for the decrease in jet fuel usage.
Around 28,000 flights usually travel through European airspace daily, and a total of almost 55,000 flights have been cancelled since 15 April, according to European aviation control agency Eurocontrol. Around 8,000 flights are expected to operate today.
Eurocontrol said 30pc of flights will take place today as upper airspace has been made available in some areas.
The International Air Transport Association (IATA) has criticised European governments over the handling of the crisis and has asked for a re-think of the decision-making process.
A spokesman from IATA told Argus that its initial and conservative estimate of the financial impact on airlines is in excess of $200mn a day in lost revenues.
Airlines including Air France-KLM and British Airways have begun operating test flights to gauge the impact of the ash cloud. KLM said these flights operated normally and nothing out of the ordinary was found in the aircrafts.
Scandinavian airline SAS said today that the total estimated effect of the halt to flights on its earnings had been 220mn-280mn krona ($30.4mn-38.7mn) up to and including yesterday. SAS said the daily negative impact was SKr50mn-90mn ($6.9mn-12.5mn).
The volcanic ash cloud has clogged airspace in almost 20 countries. The UK's National Air Traffic Services said that all UK airspace would be closed until 01:00 BST tomorrow.
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