Europe's largest airline warns of jet-fuel prices hitting $140 this winter as it cuts capacity

By Jules Rimmer

The repeated claims of an imminent peace treaty with Iran leave oil markets skeptical of ceasefire

Ryanair is canceling flights to save money as rising jet fuel prices bite

Ryanair is reducing its winter capacity to mitigate its exposure to unhedged jet fuel prices as high as $140 per barrel, illustrating the real-world impact of the energy crisis prompted by hostilities in the Strait of Hormuz, which is contributing to increased inflation expectations and the spike in global bond yields.

While Ryanair (IE:RYA) (RYAAY) is one of the best-hedged airlines operating - with 80% of its jet-fuel requirements already locked in - the high prices are forcing it to cut capacity to save between EUR70 million ($81 million) and EUR100 million, the company said.

Ryanair shares rose 2% in Dublin, while rivals including Wizz Air (UK:WIZZ) and International Consolidated Airlines (UK:IAG) saw muted moves.

In a statement, Ryanair noted that, should jet fuel prices remain elevated, other carriers will struggle to survive. This could result in a "material increase in short-haul airfares across Europe" next year.

Jeff Currie, a well-established commentator on commodity markets and a senior adviser at the Carlyle Group, warned investors about refined products a few weeks ago. Interviewed by CNBC Aug. 18, Currie emphasized that markets were looking at the wrong price. "Nobody on the planet consumes crude oil (BRN00) except refineries," he said. "Everyone else consumes gasoline (RB00), diesel and jet fuel and those markets look considerably uglier."

The issue is becoming increasingly important for markets as negotiations between the warring parties over Hormuz repeatedly break down. Rich Privorotsky, head of One Delta trading at Goldman Sachs, wrote in his daily note to clients Tuesday that before the latest hostilities over the past few days, previous jumps in oil prices were met with "intervention, diplomacy or some attempt to cool prices."

Not this time. The U.S. escalated by striking Iranian targets "while oil was already rising and during market hours." Privorotsky also warned that, even if the U.S. now decides to "aggressively de-escalate," crude oil "is just one component of the problem as distillate, gasoil, diesel and critically, European natural gas have all broken out."

The White House is clearly concerned about oil prices, especially with mounting gas prices and affordability a key subject of contention ahead of midterm elections. On Tuesday, Energy Secretary Chris Wright said 17 million barrels of crude oil transited Hormuz the day before, which is not far from the average of 20 million barrels before the disruption began in March. The 17 million number is "heavily debated," Privorostky said.

Similarly, Treasury Secretary Scott Bessent claimed Tuesday that the Strait of Hormuz will be "worthless" in two years as overland pipe routes bypass it completely.

The pressure on the U.S. government is compounded by the sharp decline in the Strategic Petroleum Reserve, where inventory has fallen to just 286 million barrels. Its maximum capacity is closer to 730 million barrels. The operational minimum has been estimated between 250-300 million, hence the urgency in rebuilding those stockpiles.

Brent oil futures were trading just below $95 Wednesday morning, around $25 below its 2026 peak of $119 set in May, but still more than 55% higher for the year so far. Inflationary pressures exacerbated by the disruption to oil markets have pushed government bond yields to multiyear highs for many countries such as Japan BX:TMBMKJP-10Y, Germany BX:TMBMKDE-10Y and Australia BX:TMBMKAU-10Y. Meanwhile, the yield on U.S. 10-year notes BX:TMUBMUSD10Y has advanced to 4.83%, its highest since 2023.

-Jules Rimmer

This content was created by MarketWatch, which is operated by Dow Jones & Co. MarketWatch is published independently from Dow Jones Newswires and The Wall Street Journal.

(END) Dow Jones Newswires

09-02-26 0731ET