Jet fuel prices in the U.S. have skyrocketed over the past few weeks, more than doubling as tensions in the Middle East raise supply concerns. As of March 20, the price increased from about $2.17 to $4.56 per gallon, according to the Argus U.S. Jet Fuel Index. Airlines are warning they might exhaust their inventories in just a few weeks, which could lead to higher airfares and even flight cancellations.
In response, airlines are already altering their operations. United Airlines’ CEO, Scott Kirby, announced that they will reduce about 5% of their planned flights in the short term due to rising fuel prices. He cautioned that if these costs continue, jet fuel alone could tack on an additional $11 billion to annual expenses.
United Airlines has also cut some off-peak services and suspended various international flights, including routes to Israel and Dubai, affected by the ongoing conflict.
Delta Air Lines’ CEO, Ed Bastian, noted that jet fuel costs soared by $400 million in March alone. During a JPMorgan industry conference, he stated that airlines are quickly adjusting fares to reflect these higher costs.
American Airlines expects an increase in fuel expenses of around $400 million for the first quarter. The repercussions aren’t limited to U.S. airlines.
European airline leaders, including those from Lufthansa and Air France-KLM, warned that the ongoing Middle Eastern conflict could further inflate ticket prices and strain already precarious fuel supplies. Some even suggested a potential fuel shortage if disruptions persist.
Air France-KLM plans to hike prices on long-haul flights, while Cathay Pacific and other Asian carriers are increasing fuel surcharges. SAS has announced it will cancel roughly 1,000 flights in April due to the rising costs, and Qantas and Thai Airways are also modifying their prices and schedules accordingly.
Jet fuel is a significant cost for airlines and is particularly susceptible to market fluctuations because of limited inventories and specific storage needs, which complicate pricing when supplies are tight. These market dynamics are in the spotlight as traders keep a close eye on the Strait of Hormuz, where tanker traffic has slowed significantly amid rising regional tensions.
The Strait of Hormuz is a critical passage, just 34 miles wide at its narrowest point, connecting Iran, the United Arab Emirates, and Oman. The waterway is vital for global energy needs, carrying approximately 20 million barrels of oil daily, including about one-fifth of the world’s liquefied natural gas.
The Middle East exports roughly 1.1 million barrels of jet fuel per day, which accounts for about 17% of global consumption, according to Jaime Brito, who oversees refining and petroleum products at OPIS. With supplies already limited, any disruption could further tighten the market, leading to escalating fuel prices.
