Jet Fuel Rebounds in Europe as Iceland Volcano Concern Eases

European jet fuel rebounded from its lowest in a week on speculation that volcanic ash from Iceland won’t disrupt air travel as much as last year’s eruption.

Jet fuel swaps rose as much 1.8 percent as airlines canceled more than 250 flights and U.S. President Barack Obama curtailed his visit to Ireland after ash drifted over the northern U.K. Particles from the Grimsvötn volcano were more dense and would not remain in the atmosphere as long as those from the Eyjafjallajökull blast in April, 2010 which grounded 100,000 flights, according to a forecast from New-York-based researcher Weather 2000, Inc.

“We are likely to avoid last year’s disaster when skies over Europe were closed,” Andrey Kryuchenkov, an analyst at VTB Capital in London, said in a note today.

The June swap contract for barges of the aviation fuel advanced $18.30 to $1,019.14 a metric ton in northwest Europe as of 4:15 p.m. London time, according to data compiled by Bloomberg. It fell to a one-week low at $995.64 a ton yesterday.

British Airways, Air France-KLM Group and a dozen other carriers were forced to cancel flights today. BA halted services to Scotland, United Continental Holdings Inc. scrapped three U.S. flights. Ryanair Holdings Plc, Europe’s biggest discount airline, said there is “no basis” for cancelations and that it operated a “verification flight” over Scotland and found no evidence of dust in the atmosphere.

Not as Dramatic

“Neither the scale of the eruption, nor the likely response of the industry and regulators are likely to be anywhere near as dramatic as the disruptions last year,” Lawrence Eagles, New York-based head of commodities research at JPMorgan Chase & Co., said in a note. “While flight delays are likely, we would be surprised if there was a material impact on European jet demand as a result of the eruption.”

Consumption of the fuel plunged last April as the eruption of the Eyjafjallajökull volcano closed European airspace for six days. The canceled flights cost the industry $1.8 billion, the International Air Transport Association said in June.

Jet fuel barge prices declined yesterday in Europe’s Amsterdam-Rotterdam-Antwerp oil-trading hub on worries that the ash would curtail flights and reduce demand. One barge traded at $989 a ton, dropping 1.4 percent from $1,003 a ton on May 20, according to data compiled by Bloomberg.

Premium Dropped

The fuel also traded at a $90 premium to June gasoil on London’s ICE Futures Europe exchange yesterday compared with a trade at $94 a ton more than on May 20. The contract settled at $899.50 a ton. It gained 1.7 percent to $914.50 a ton today.

European jet fuel premiums fell as much as $10 a ton as a result of the ash cloud in April 2010, Bloomberg data showed. Barges were at a $45 more than ICE gasoil when the eruption began April 14 and dropped to as little as $35 on April 19.

Last year, airport storage tanks reached capacity in parts of Europe, disrupting fuel shipments. Frankfurt airport canceled supplies from a link connecting it with refineries including BP Plc’s 400,000-barrel-a-day Rotterdam plant. Deutsche Lufthansa AG declared force majeure, a legal clause allowing companies to miss deliveries because of circumstances beyond their control, on fuel deliveries.

To contact the reporter on this story: Lananh Nguyen in London at lnguyen35@bloomberg.net

To contact the editor responsible for this story: Stephen Voss at sev@bloomberg.net

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