Russia-Ukraine conflict may provide slight boost to European jet fuel demand: traders

A major escalation in military conflict within the territory of Ukraine is likely to provide a small boost to European jet fuel demand, traders told S&P Global Platts Feb. 24.

The Ukrainian airspace may have closed for commercial planes but both Russian and Ukrainian military aircraft are flying in the region, and planes flying from Northwest Europe to Asia will be consuming more fuel to avoid Ukrainian territory, reckoned traders.

"There are not many flights to/from Ukraine relative to the total, there will be re-routings," according to a Europe-based source. "This may add to some flight times, for example to routes from Europe [including UK] to India," he added.

Factbox: Crude prices climb as Russia 'invades' Ukraine

Ukraine, along with some neighboring countries of Moldova and parts of Belarus, closed its airspace to commercial flights. The closures also apply to all flights to and from 12 airports in the south of the Russia, according to the country's Federal Air Transport Agency.

According to another Europe-based middle distillates trader, cancellation of flights in/from Ukraine will have only very marginal impact, however, some airspace being closed will mean plane need to use more fuel for detours.

"In term of European jet fuel supply, little comes normally from Russia, only Novatek brings jet fuel from Baltics to NWE and will likely be affected," he said, adding that little if any jet fuel comes from Black Sea into Mediterranean.

According to a third trader, Novatek "primarily sells jet into Baltics and Scandinavian countries ... into Europe sometimes but not often." "In general the jet balance in Europe is tight, cancellation flights for Ukraine is only leading to increase consumption as some planes will have to go longer routes, flights from London to India usually go over Ukraine so will need more fuel to avoid Ukraine, more time flights."

While all middle distillates see diesel supply at risk from a potential ban on oil products imports from Russia, the fact that the European jet fuel market was already rather tight due to closed arbitrage routes into the region and a very low stocks environment, meant that there was more upside to downside currently to jet fuel prices and cash differentials.

"In recent years we have seen jet coming out for Russia, Novatek and some Rosneft stuff and it might be difficult [to place into Europe], I think it will be difficult to sell to international airlines, I think it will make supply lines more difficult," a fourth trader said.

"Right now it's more about risk premia, maybe you will see jet outperform ... stocks are low, easy to sell jet at the moment, Fundamentally jet market is pretty tight, but not as tight as diesel," he said, adding that apart from the Amsterdam-Rotterdam-Antwerp hub, jet stocks were very low in Europe.

"The timing is very bad for Europe, already super tight," the fourth middle distillates trader said.

Jet CIF NWE cargo differential swaps to the ICE low sulfur gasoil frontline futures swaps have risen in morning London trade amid news of Russia's invasion of Ukraine. The March 2022 swap traded at $49.50/mt, up $5.50/mt from a Platts assessed value of $44/mt on Feb. 23, while the April 2022 swap traded at $54/mt, from an assessed value of $49.25/mt Feb. 23.

Meanwhile, the front-month March ICE low sulfur gasoil price had jumped by around $60.25 in early trading to trade at $892/mt at 12:30pm London time, up from a Platts assessed value of $831/mt on Feb. 23. The prompt month spread, assessed at $17/mt at 16:30 London time Feb. 23, was trading at $22.50/mt. ICE low sulfur gasoil futures are a 10ppm sulfur diesel contract, delivered into the Flushing-Amsterdam-Rotterdam-Antwerp-Ghent refining hub, on expiry.