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Jet market begins to return to normal conditions

21 Apr 2010 14:15 (+01:00 GMT)
Jet market begins to return to normal conditions

London, 21 April (Argus) — The European jet fuel market began to move back to normalcy today as the flight ban across Europe was lifted by aviation authorities and buyers returned to the market.

But with inventories bulging, differentials were unmoved and a $5/t price rise was the result of a rise in gasoil futures rather than a surge in buying.

It will take 1-2 weeks to run stocks back down to normal levels. The amount of jet fuel in floating storage in northwest Europe increased by 200,000t (1.6mn bl) to over 1mn t after volcanic ash clouds from Iceland threw global air travel into chaos.

Airlines and airports have suffered six days of disruption. Delays and cancellations to flights will continue because of the backlog. Airlines decline to specify when schedules will return to normal.

European jet fuel demand plunged when the crisis began. Around 150,000 t/d (1.2mn b/d) of jet fuel is used in flights from Europe, and almost 40pc of flights have been cancelled since 15 April, resulting in a loss of over 400,000t of demand.

But while no deals were finalised in the European barge market this morning, offers are expected in the afternoon session.

The morning market was dominated by a long list of bidders with no sellers seen. Morgan Stanley, BP, Shell and Statoil were all bidding, and bids ranged between a $36/t and $38/t premium to Ice May gasoil, in line with yesterday's levels, which saw five trades at a $37/t premium to Ice May gasoil in the spot market.

Morgan Stanley and BP have bought four 2,000-3,000t barges in the last three days in the Amsterdam-Rotterdam-Antwerp (ARA) region, while Statoil and Shell have been sellers since the crisis began but were on the bid side this morning.

Airlines KLM and Lufthansa have been active on the sell side throughout the crisis. Lufthansa confirmed that it declared force majeure on deliveries, and has cancelled jet fuel contracts after it ran out of storage space.

Supply on the ARA barge market is adequate but traders are compensating for postponed cargoes with barges for now.

The International Air Transport Association (IATA) said the financial impact on airlines of the volcanic ash cloud crisis has eclipsed the aftermath of 9/11, costing the global airline industry more than $1.7bn. But IATA said the fuel bill has been cut by $110mn/d for the last six days.

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