Abu Dhabi: Jet fuel prices could be set for a further decline after the global average fell 8.4 per cent year-on-year at the end of August.
Brian Pearce, chief economist at the International Air Transport Association (IATA), told reporters in Abu Dhabi on Wednesday jet fuel prices will “typically” follow market indicator brent crude.
The European benchmark, brent crude, hit a 26-month low this week and was at $98.79 (Dh362.56) a barrel in early morning London trade on Wednesday. Jet fuel traded at a global average of $120.6 a barrel on August 26, according to the IATA website, compared to $130.73 a year earlier.
Pearce, speaking on the sidelines of the IATA World Financial Symposium, said today’s jet fuel price was near the “bottom end” of the $110 to $140 a barrel fluctuation over the past three-and-a-half years.
Oil prices are yet to spike in response to political instability that has emerged out of tensions between Russia-Ukraine and increasing violence in Iraq. However, analysts say that a combination of oversupply, United States shale production and weaker growth out of China are behind declining global oil prices.
“There have been a number of shocks, a number of changes, but at the moment we haven’t seen those shocks affecting oil prices,” Pearce said.
Active hedging
However, Pearce also said jet fuel remains vulnerable because the commodity can be made into other forms of fuel.
“The airline industry is often competing hard against other users [for fuel],” he said.
At the same event, James Hogan, Etihad Airways’ president and chief executive, stood by the airline’s active hedging strategy. “Our aggressive fuel hedging plan is very well known,” he said.
In June, prior to the escalation of violence in Ukraine and the taking of large swathes of western Iraq by fighters from the Islamic State, IATA shaved $700 million off its profit forecast for airlines in 2014 down to $18 billion.
On Wednesday, Pearce said: “At the moment we don’t see a reason to change our global view.”
