Amid increased flight capacity and geopolitical risks, the Singapore jet fuel futures market picked up throughout 2023 as airlines boosted hedging fuel costs. However, expert analysis by Platts (part of S&P Global) has indicated that structural changes to airline operations and ongoing supply chain uses are likely to limit the remit of hedging programmes in the years to come.
Total open interest in the Singapore jet fuel contract from January to November on the Intercontinental Exchange surged 74.3% to some 368.96 million barrels, according to ICE data. Total interest in the contract from the 13th to the 24th month over January to November also rose from zero at the height of the pandemic to 1.47 million barrels in 2023.
With ongoing geopolitical problems in the Middle East and Eastern Europe compounded by tension in the Northeast Asian region, “[Airlines] are really looking at adjusting their positions for next year on the assumption that geopolitical uncertainty will continue, if not get worse,” explained Shukor Yusof, primary analyst at Endau Analytics.
However, ongoing supply chain and MRO shortages will continue to impact airlines’ flight schedules, with Singapore Airlines noting in its annual 2023 report that “where the occurrences of these forecast jet fuel purchases are no longer highly profitable, hedge accounting has been discontinued.” Although the carrier only reported a one-year hedging programme in the financial year ending in March 2022, its subsequent programme was extended to a six-quarter duration, and it has hedges placed through the third quarter of financial year 2024-2025.
Platts also predicts that structural changes to airline operations – with actual numbers of flights scheduled down 8% on 2019 as aircrafts switch to larger types – could also impact fuel volumes, as could the increasing adoption of more modern aircraft.
Platts assessed the Singapore jet fuel/kerosene front quarter Q1-Q2 derivative time spread -- an indicator of long-term sentiment -- at an average of $2.67/b over Oct. 1-Dec. 12, down from Q3 2023 average of $4.37/b and Q4 2022 average of $5.59/b.