OIL MARKET JOLTS: Explainer: Why jet fuel and diesel are so vulnerable to price shocks

OIL MARKET JOLTS: Explainer: Why jet fuel and diesel are so vulnerable to price shocks Jet fuel and diesel have become increasingly susceptible to sharp price fluctuations due to a combination of global supply chain vulnerabilities, structural weaknesses in refining infrastructure, and the limited flexibility of modern refineries. The latest surge in fuel costs, driven by geopolitical tensions and supply disruptions, has hit airlines and industries reliant on these fuels particularly hard. In South Africa, for instance, the price of Jet A-1 soared from approximately R11.14 per litre to as much as R38 in early June, following heightened tensions between the United States, Israel, and Iran. This spike led to some airlines introducing surcharges on flights, with one carrier reporting an additional R692 per ticket on standard routes and up to R1,400 on long-haul trips. The volatility in jet fuel prices reflects broader issues within the energy sector. The crack spread, a measure of the refining margin, has reached levels not seen since 2025, peaking at $80 per barrel over the price of crude. This widening gap indicates that producing jet fuel from crude oil has become significantly more costly, primarily due to reduced refining capacity and increased competition for limited resources. In South Africa, the situation has been exacerbated by the collapse of the domestic refining sector, which saw the number of operational refineries drop from six in 2015 to just two in 2026. As a result, the country now relies on imported fuel for 75% of its needs, with 70% of these imports passing through the strategically vital Strait of Hormuz. The impact of this dependency extends beyond South Africa. Globally, refineries operate as complex, multi-product systems where the production of one type of fuel affects the availability and pricing of others. For example, while jet fuel constitutes only 10% of the world's refined fuel output, its production is tightly constrained by the need to maintain profitability in other areas of the refining process. Diesel and gasoline, which generate higher margins, often take priority, leaving jet fuel to be produced in smaller quantities. When refining capacity is lost, especially in regions critical to global supply chains, the effect on jet fuel is disproportionate, leading to rapid price increases. At the African Refiners and Distributors Association conference in Cape Town, Michael Osaruyi Obaseki, managing director and country head for Glenco, highlighted the importance of diesel in supporting key sectors such as heavy industry and mining. Unlike aviation, which faces direct pressure from rising fuel costs, diesel remains essential for operations that drive economic activity. However, even this critical resource is not immune to price shocks, as global supply constraints continue to influence markets. The consequences of these price swings are already evident. Airlines, which account for nearly half of their operating costs in fuel, have seen passenger numbers decline due to the introduction of surcharges. In one case, a major airline reported a 14% drop in passengers after implementing higher fares. Such losses underscore the fragility of the aviation sector, which operates on thin margins and is highly sensitive to changes in fuel prices. As the situation evolves, the focus will likely shift toward strategies to mitigate the effects of these price shocks. These could include diversifying fuel sources, investing in alternative energy solutions, and improving the efficiency of existing refining processes. However, given the current state of global energy infrastructure, any meaningful relief will require time and substantial investment. Until then, the vulnerability of jet fuel and diesel to price fluctuations will remain a defining challenge for both the aviation industry and broader economies.