Asian Airlines Lifted By Jet Fuel Price Fall

Asian airlines, bruised by rises in jet fuel prices, are poised for a comfortable ride after the market took a beating last week, industry sources said.

Jet fuel should fall further because the winter buying is over and the weather (in north Asia) is not so cold, one trader said.

Last week, jet fuel prices in Singapore, a benchmark for regional markets, lost around $3 per barrel, or about 10 per cent, to about $28.50 per barrel on Thursday.

The market had traded at a near six-year high of $34.10 per barrel in early December.

Asian airlines were quick to take advantage of the latest price slump, and over the past few days have hedged some of their costs for the rest of the year.

The regional carriers came out to hedge their forward consumption when the prices dropped, one oil trader said.

The airlines bought several million barrels of jet fuel for the second and third quarters at below $27 per barrel, sources said.

That price is below the 1996 Singapore average of about $28.50 per barrel, which was 25 per cent more than the 1995 average of $22.80. Fuel is about 10 per cent of airline costs.

It is much-needed good news for airlines. Higher fuel costs were such a problem that last year, they got together to raise fares, an equity analyst said.

Asian airlines in December raised fares by three per cent in line with recommendations by the International Air Transport Association (IATA), to make up for an increase of more than 40 per cent in fuel costs last year.

This (lower fuel cost) will help boost airline earnings, the analyst said.

Oil industry sources said the market was likely to weaken further.

Traditionally, the second and third quarters of the year are periods of low demand as North Asian countries stop buying jet fuel or kerosene for winter heating.

Japan and South Korea are not buying any more jet (fuel) for the winter, a trader at a Japanese trading house said.

Japan, the region's largest importer of jet fuel in winter, has not bought new cargoes since the beginning of February due to high domestic stocks and a mild winter, the trader said.

Kerosene stockpiles at the end of December were 4.1 million kilolitres, up 33.2 per cent from a year earlier, the ministry of international trade and industry said.

However the jet fuel market's slide may be tempered by news of three refinery shutdowns in the region for scheduled maintenance because of reduced supply.

Mobil Corp will close its 280,000-barrel-per-day (bpd) refinery in Singapore for six weeks from mid-March, and the Singapore Refining Co will close a 90,000-bpd unit for 20 days from March 1.

Indonesia's 120,000-bpd Dumai refinery also will close in mid-February for three weeks.