Oil markets roiled by iran conflict, jet fuel prices soar
Global economic disruption from the Iran war has sent shockwaves through petroleum and critical raw material markets, exposing vulnerabilities in global supply chains. Natural gas for electricity generation, fertilizers for crops, and industrial CO2 for the food industry are all under strain.
Jet fuel supply in jeopardy in europe by may end
The International Energy Agency (IEA) warned that jet fuel supply to Europe could be severely disrupted by late May, as Iran's export of this critical aviation fuel variant faces growing risks. Yet, on trading screens, no signs of this impending shortage are evident, with prices continuing to form and buy/sell orders being executed by brokers. Specialists are on edge, fearing financial markets may not be accurately reflecting reality.
April is when contracts for oil negotiated during the war's early weeks should be settled. Normally, the spot price of oil is higher due to transport costs, but the current crisis adds a geopolitical and military risk premium from the threat of attacks on ships and losses of massive cargo.
The IEA noted that physical delivery contracts for spot oil have traded at $150 per barrel, hinting at a market disconnect due to supply loss risks, with the specter of the Strait of Hormuz's closure. This underscores a high level of investor distrust and market disorganization.
Despite Iran's continuing oil exports, mainly to Asia, since the February 28 conflict began, as the IEA confirms in its report, everything changed last week with the US declaration of a naval blockade and the first documented attack on an Iranian commercial tanker by the US Navy over the weekend.
The so-called Iranian route that hugged its coast, unofficially evading the blockade through payment of tolls in cryptocurrencies up to $1 per barrel (until $2 million for super tankers) to the Islamic Revolutionary Guard Corps, only facilitated the passage of a few dozen vessels, according to monitoring agencies like Reuters, Bloomberg, or Kpler observing Ormuz.
Loss of part of the crude oil supply from the Persian Gulf to Asia has further pressured global diesel prices and prompted a 140% surge in jet fuel prices compared to last year's levels by this time. According to IATA data, jet fuel is trading at around $210 per barrel in Asia, $200 in the Middle East, and $190 in Europe.
In contrast, North America (US, Canada) still enjoys a jet fuel price of around $166 per barrel, 25% cheaper than other regions.
A stark contrast to 2022's Ukraine-Russia war, which saw jet fuel prices barely reach $180, the current difference is that operators can negotiate contracts that may be breached, as the IEA warned in its recent alert.