The sell-off in oil has intensified as much of Europe is still paralyzed by air travel disruptions caused the the volcanic ash cloud hovering above parts of the continent.
Analysts at Barclays estimated that the disruption could result in a loss of about 1 million barrels a day of jet-fuel demand. Energy analyst Olivier Jakob of Petromatrix said that the loss of flying from Friday through Tuesday will wind up causing a build-up of European jet-fuel stocks of about 5 million barrels.
Eurocontrol, Europe’s main air-safety organization, estimated that less than a third of the 28,000 flights that fly on a typical Monday will take place in European air space. So although some flights are resuming, the short-term impact on jet-fuel demand is significant.
JPMorgan Chase analyst Lawrence Eagles said that an additional 10 percent of North American and Asian demand is affected by the disruption, resulting in as much as a quarter of a million barrels per day in lost demand.
While all of this may seem like a small drop in the giant bucket of the 85 million barrel global oil market, the sell-off in Nymex heating oil and ICE gas oil shows traders have bet that this ongoing disruption will have a short-term negative impact on the distillate market.
Nymex heating oil futures for May are down 2.5 percent and ICE Gasoil has fallen more than 2 percent. Nymex heating oil and ICE Gasoil are seen as proxies for jet fuel since the jet fuels for Northwest in Europe and the U.S. Gulf Coast are only traded institutionally.
Even when air travel picks up in more European regions, volatility in the distillate market is expected to continue, because there will be catch-up period in demand. Nymex traders are likely to keep heating oil in focus this week.
Technically, traders have been watching $82.50 as the key level of resistance for the May Nymex crude futures, which expire tomorrow. But holding the $80 level—technically and psychologically—may be the more critical juncture for May futures. Volumes are far greater on the June contract, which is also down almost 2 percent.
The test will be whether the Goldman Sachs fallout and depressed jet-fuel demand will be enough to put a definitive damper on oil's recent rally.