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

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

Ryanair on Wednesday reduced its winter capacity to mitigate its exposure to unhedged jet fuel prices of $140 per barrel, illustrating the real-economy impact of the energy crisis prompted by hostilities in the Strait of Hormuz that 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 oblige it to cut capacity and save itself 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 its statement, Ryanair noted that should jet fuel prices remain elevated then other carriers will struggle to survive and this will 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 advisor 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. Everyone else consumes gasoline (RB00), diesel and jet fuel and those markets look considerably uglier."

The issue is coming increasingly into focus 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 until the latest salvoes were exchanged in the last few days, previous jumps in the price of oil were met with "intervention, diplomacy or some attempt to cool prices."

Not this time, though. The U.S. actually escalated by striking Iranian targets "while oil was already rising and during market hours." Privorotsky also warns that even if the U.S. now decides to "aggressively de-escalate" that "crude 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 mid-term elections. On Tuesday, for example, Energy Secretary Chris Wright said 17 million barrels of crude oil transited Hormuz Monday, which is not far off the 20 million barrels daily average before the disruption began in March. The 17 million number is "heavily debated," Privorostky acknowledges.

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. Inventory held there has now fallen to just 286 million barrels while 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 has pushed government bond yields to multi-year highs for many sovereigns like 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%, their highest since 2023.

-Jules Rimmer