Jet fuel market faces extreme supply tensions

• Jet fuel prices surged nearly 90%, exceeding $1,500 per ton, the highest level since the start of the Ukraine war.
• The jet fuel crack spread climbed to almost $100 per barrel, indicating a shortage of refined product rather than crude oil.
• The Middle East plays a critical role in global fuel exports, accounting for about 22% of global petroleum product trade.
• Europe is particularly exposed, as about 25% of its jet fuel consumption is imported, with over 40% coming from the Middle East.

In recent days, global oil product markets have experienced strong price increases, but the most dramatic move has occurred in the jet fuel segment. Prices for aviation fuel have risen by nearly 90 percent, surpassing $1,500 per ton, the highest level observed since the start of the war in Ukraine. The pace of this increase has significantly exceeded price movements in other refined fuel markets, suggesting particularly strong supply tensions in the aviation fuel segment. This sharp price reaction indicates that the problem lies primarily in the availability of the refined product rather than in crude oil itself.

A key indicator highlighting the scale of the market tension is the crack spread, which measures the difference between the price of refined products and crude oil. In the case of jet fuel, this spread has surged to nearly $100 per barrel, reaching levels noticeably higher than those observed in the diesel market late last week. Such a high spread implies a sharp increase in refinery margins for jet fuel production. In practice, this usually signals a shortage of finished fuel products, as refineries can command a significant premium for supplying aviation fuel.

One of the main reasons behind the current situation is the strategic importance of the Middle East in the global refining system. The region accounts for roughly 11% of global refining capacity as of 2024. This is considerably less than the share of the United States (19.6%), China (17.6%), or Europe as a whole (about 14%). However, the Middle East plays a far more important role in the international trade of refined petroleum products. In recent years, countries in the Persian Gulf have been building modern, export-oriented refineries, while refining capacity in many developed economies has been gradually declining.

As a result, the Middle East now accounts for around 22-23% of global petroleum product exports, equivalent to approximately 300 - 320 million tons annually. A crucial part of this system is the Strait of Hormuz, through which about 5 million barrels of petroleum products are transported every day. Around 2 million barrels per day consist of middle distillates, including jet fuel and diesel. This means that any disruption to shipping routes in this area can quickly translate into supply tensions and sharp price increases in global fuel markets.

The importance of Middle Eastern supply is particularly visible in Europe, which is heavily dependent on imported aviation fuel. Approximately 25-28% of total jet fuel consumption in Europe is covered by net imports. More than 40% of these imports originate from the Middle East, making the region a crucial supplier. As a result, any disruption to exports from the Gulf region can almost immediately push jet fuel prices higher in European markets.

Current tensions are only partially offset by the likelihood of reduced air traffic, which slightly lowers demand for aviation fuel. However, the decline in demand is too small to compensate for the risk of supply shortages. Consequently, jet fuel prices react particularly strongly to geopolitical developments and disruptions in global trade routes. This makes the jet fuel market one of the most sensitive segments of the global energy system, highly responsive to geopolitical shocks and supply disruptions in the international trade of refined petroleum products.