Merged: The Price of Oil

[desmotronic]

Given the obvious importance of oil as an productive input in the airline industry, i am wondering where industry professionals think the price of oil is going....

Current factors seem to include:
- limited short term ability to increase supply
- limited short term ability to reduce demand
- long term development of technologies to increase efficiency and also switch to alternatives
- OPEC preparedness to defend the $60/barrrel with cuts to production
- China building huge storage facilities with a view to accumulating strategic reserves equivalent to 1 month consumption
- global inventories of only a few days consumption
- rapidly increasing per capita gdp in China and India especially leading to mass increases in consumer demand
- geo political instability in the middle east
- increasing costs of production and difficulty in extraction
- current seasonal softening in US demand

Long term average oil price is around $30 barrel, highest last 12 months around $100/barrel, currently settling around $60/barrel.

My crystal ball says this is as low as it gets, it will be more than $70 in 6 months $80 in 12 months and back over $100 within 2 years. What do you reckon???

[Shitsu_Tonka]

Whatever it will be, the price will be artificially inflated by short sighted (read political cycles) policies of governments who are in the clutches of the oil industry, and dependant upon the continued growth and success of a global economy that is inextricably linked to fossil fuels.

Poor economic growth = bad politics = getting voted out. However, the continued growth and demand from investors year after year is not resource sustainable. Unfortunately the policies to break away from this headlock are not politically palatable - they are considered too "courageous".

Hence stupid wars over the beliefs it will "secure" supply of a finite resource that is in a growing demand.

And stupid policies like globalisation, extending lines of supply to thousands of kilometres, when the local economy is able to provide at similar costs.

This all equals volatility in the market. Proven reserves after all are taken on trust from OPEC nations like Saudi, Iran etc. Independant verification of proven reserves is not permitted.

New drilling technolgies however are providing better new finds in the past couple of years - but still not enough to meet rising demand.

Oil sands are too energy hungry a process to be ling term viable - also their need for immense amounts of water in the processing creates a new problem with water becoming more and more valuable.

So what happens to the price?

It will be volatile - the highest peaks of late have been on speculation based on a lot of unrelated world events - the world stability premium. In the medium to long term of course it will rise, but too quick a rise makes alternative energies economically more viable and reduces demand - therefore cutting profits. The greed factor can be bad for the corporates if one is too greedy to quickly (and the governments who rake in the excise!).

US Politics is run by oil - have a look at the players and where they come from and where they go to after running the world (as they see it).

In some ways a new massive oil spike would be a very good thing - it would actually help wean us off the stuff quicker. Then the price will eventually come off - and possibly permanently, as new cleaner sustainable technologies gear up and reduce costs through economy of scale.

[desmotronic]

Interesting that despite opec sabre rattling regards to reducing supply only the Saudis appear to be actually reducing their shipments and the committment/ability of the other opec nations to do the same is being questioned.

[Shitsu_Tonka]

Owen Stanley,

You may well be right, but like the speculators (read NYEX Traders) that punt on it, it's all a bit of a short term guessing game.

The long term outlook can only be an escalation before the market collapses all together (which could be 10-100 years away with the crap data we have).

Hence the potential volatitlity.

The hardest part of it IMHO is changing the whole infrastructure and it's political influence - oil companies, car manufacturers and their supply chains, globalised business and their supply lines, tourism / business travel, etc.etc.

Optimistically though, we have done it all before.

[St. Elmo's Fire]

Just searched the web for some info regarding a forecast for crude oil prices. They are predicting the price of oil to fluctuate around US$60 / barrel for the next six months. I hope Owen Stanley's prediction is accurate ($42/barrel), however, I get the impression that these relatively low prices won't last for much longer...... :confused:

[Far Canard]

Don't be concerned about running out of fossil fuels at this stage. The big problem is all the global warming hype. If this gets out of control and causes problems extracting oil from oil sands etc then live as we know it is finished. There are two ways to go from this point. Forget the environment and bring on plenty of nuclear power. Continue consuming all the fossil fuels you can find including turning coal into fuel. The greeny choice to stop using fossil fuels and to ride bikes appears to be the best thing for the environment but does not factor in the economic shock and massive unemployment that would more than likely end in WW3.
I think all pilots should be vermently opposed to the green movement and the idea of global warming.

[Shitsu_Tonka]

I think all pilots should be vermently opposed to the green movement and the idea of global warming.

On the basis of pure self interest I presume?

[Ultralights]

Just searched the web for some info regarding a forecast for crude oil prices. They are predicting the price of oil to fluctuate around US$60 / barrel for the next six months. I hope Owen Stanley's prediction is accurate ($42/barrel), however, I get the impression that these relatively low prices won't last for much longer...... :confused:

i dont think OPEC will allow the price to drop lower than $60, they will simply reduce output to maintain the price, as they are doing already.

[Bedder believeit]

It's funny, this should be a topic that consumes us all. And yet we see observations on this thread that are so "short term" as to be almost incredible in their naivete. I am just as much to blame as to the state of the World that we are rapidly descending in to as many that read here. I drive a car, passenger (long distance) on aircraft probably 6 times a year, and for the past 40 odd years have earned my living from aviation. And yet I see short term statements like "$42 barrel in six months time" as if it's a joke. I guess that it will be an irony of the way things go, that many who can be so whimsical here will be amongst those most affected by the way things will go....including me!

It's got nothing to do with whether or not the Saudi's or OPEC or whoever raise/lower production etc to protect some silly mythical "Oil Price". It's the mere fact that we are hooked on a finite asset that is rapidly disappearing.

And before everyone jumps on me, I don't know the answer.

[Chimbu chuckles]

****su

No, on the basis that anthropogenic (caused by man) global warming is a load of BS.

The world might getting warmer...or cooler. One day it will get cooler..or warmer. There aint a fecking thing we can do to significantly effect this natural cycle. It has been happening for millions of years. I find it amazing that no one in the mainstream media ever thinks to ask the 'climate' scientists that predict man made disaster what caused the last three ice ages and warm periods when man was not around burning fossil fuels:ugh:

On the rare occassion when they are actually pushed they admit the earth was an average 4 degrees warmer 3000 years ago...but the media 'professional' never then challenges the doomsayer predictions of ice cap melting and sea level rise. The scientist will say something like "We know from ice core samples that the world was as much as 4 degrees warmer 3500 years ago" and the next 3 logical questions don't get asked;

"Oh all the ice didn't melt?"

"And the polar bears weren't driven to extinction?"

"What caused it to get warmer...it wasn't us?"

No...much better to stick to the politically acceptable assumption that it is caused by us and then discuss doomsayer predictions that keep people on the edge of their seats.:{

As to oil. Anyone else been reading about the HUGE light sweet crude find in Utah that will rival Prudhoe Bay?

The last 4-5 years they have been drilling madly and FINDING oil.

The Saudis have been mumbling about over production and flooding the market for 12 mths...but it has mostly been lost in background noise and the speculator hype. Demand has been dropping and the inventories have been accumulating. One of the reasons they have to cut production is because the biggest market, the US, can't store the **** in enough places and need to sell the expensive stuff to make room for the cheaper stuff.

Now the Saudis have two choices...just cut back on production to match demand or make a big announcement and scare the price up into a little spike of a couple of $...or more likely just get a little slowing of the price slide...either way it's worth Billions to their bottom line...and all the other oil producing nations and companies.

Atomic power is on the adgenda in Australia for one reason and one reason alone...there is no better way to produce the VAST amounts of electricity required to make desalination of sea water feasible. There is also no cleaner way. You could do it with coal fired power stations or oil fired power stations...but why would you?

Australia is a dry continent...millions of years ago it was mostly rain forest, as was antartica btw..(what caused it to get drier? Fecking sure it wasn't Wayne driving his V8)...it cannot support a growing population from a water perspective. The population probably exceeded what the continents rainfall could sustain naturally 15+ years ago.

For 'the population' to keep growing so it can support 'the economy' Australia needs to start desalinating sea water on a large scale...so we need atomic power stations.

Personally I would like, like ****su, to see globalisation vastly reduced because it is innefficient. Localised production and distribution would be a good thing from very many points of view...just not the point of view of 'the economy'...which as we discussed some months ago is the small % of greedy Mofos at the top of the human food chain...'the market' multinationals, CEOs...abetted by Pollies:mad:

Given that they make the decisions and 'the population' gets no say in the matter that is less likely to happen.

The big problem is that the greenies have so captured the political adgenda that it is near impossible to do the things needed on a short enough time scale. Imagine how the luvvy, tree hugging feckwits are girding their loins on atomic power? Collating all the horror strories on atomic power...or at least the ones that showcase the technology of the 1950s and the political ignorance of it's safety or otherwise. I suppose there really is no possibility that nuclear technology has advance any in the last 1/2 a century:ugh:

I hope the threatened Supreme Court actions against Govts on climate change actually happen...they will cost millions but if that gets the facts out about global warming rather than the hype it will be money VERY well 'wasted'. Much better than wasting trillions on Kyoto which cannot make any difference as to whether the world warms or cools...spending trillions on Kyoto is just feeding another self sustaining beaurocracy:ugh:

Rant over:ok:

[Bedder believeit]

Hey Chimbu, our threads/posts must have crossed. Having poled 185's and 206's into places like Omkali, Pindiu and Mindik in the '60's with two 44gal drums of "benzene" strapped in the back, maybe we do have something in common...or do we?
The changes that have undoubtedly happened to the Earth in the past are generally accepted to have happened over many hundred's of thousands (if not millions) of years, and the natural environment adapted. Not the temp fluctuations that are being seen now in a very short space of time. Sure there have been "natural" interruptions to the place such as the Santorini and Krakatoa eruptions in recent past that have temporarily upset the balance.
If you have ever passed a group of rubbish bins and consciously made the effort to throw your used "South Pacific Post" into the "Papers only" bin and not the "Bottles only" bin, then you to have just a bit of a green streak in you to.
Well might you be correct to let us know that they "have been finding oil" and I am sure that there is quite a bit more "oil" still to be found. However, one day, and it won't be too far away, the well will run dry. It might be beyond our life times, but it will happen.

[Shitsu_Tonka]

Chuck,

Deep down behind my lefty facade I am actually an optimist.

In that light, I indeed hope you are right.

I say hope, becasue I could trawl all around and find conflicting bodies of opinion vociferously, and often effectively, arguing both sides of the debate.

I will not agree with you however that getting legal challenges to theory is a good answer. Have witnessed it in the US with the legal gag on teaching the theory of evolution vice creationism or intelligent design. Lawyers are good at dumbing down the general populus.

[Chimbu chuckles]

We certainly have 185s Omkali, Pindiu and Mindik in common...:ok:

I am greener than I may, at times, sound...that doesn't mean I believe in anthropogenic global warming. Certainly a cleaner environment is preferable from many perspectives. I don't want to see mercury killing fish or pollution turning pretty rivers and countryside into ugly useless areas...I don't like seeing Malaysian logging companies clear felling forests and turning rivers brown with silt and clogging inshore reefs with sludge. But those are different issues and don't impact global warming or cooling...they didn't have an effect over millenia and they don't have a measurable effect now or in the future.

The earth has been evolving and CHANGING since day 1. All of a sudden it is 'our fault' and some think we can stop that evolution.

Show me some imperical data that proves anthrogenic global warming...and I don't mean quote David Suzuki...show me some proof that what you believe to be true is actually happening.

I certainly believe the world is getting a little warmer...I just don't accept that man is causing it or that it will be catastrophic.

As to oil running out?

Possibly. But when, as quoted above somewhere, only a single digit % of oil use is air travel that means to me that 90% of the rest of the transport modes we rely on can be driven by alternatives.

We don't need oil (or coal) to drive cars, trains or power stations. With the alternative technologies being refined we can reduce our dependance on oil by 75+% if the will is there.

Think of it this way. What would a barrel of oil be worth if 75% of the worlds cars were hybrid/bio diesel? What would that do to Govt tax revenues? Remember that close to 50% of the cost of every liter goes to the Govt in fuel excise and GST...and GST on fuel excise:mad:

What would happen to the price of a barrel of oil if that C change could be effected in the next few years?

It would hit about $5/barrel!

That would leave those technologies that cannot be transfered easily away from oil...like aeroplanes, shipping etc to use a product, oil, that has a life extended by thousands of years.

It won't be that spectacular of course. These things will happen over time...as demand varies oil production will vary in an effort to maintain it at a price that everyone can live with. The result will be the same in the end however...affordable oil lasting many generations beyond the point where I cease to give a ****.

[Chimbu chuckles]

I don't want to hijack this thread into a GW one but as it already has been, to some extent, and the Peak Oilers and GW doomsayers seem to want to link the two I will just post this.

http://mclean.ch/climate/Eye_opening.htm

And challenge you guys, in the friendliest manner, to think about this stuff in a slightly more open minded manner...rather than just listening to greeny, left wing media shouting the greenie, left wing mantra of "We're all doomed!!"

And think also about this. If the miniscule overall reduction in CFCs of the last 10-15 years in the southern hemisphere has managed to start the ozone hole closing back up again, according to NASA, NOAA etc, how come the massive use of CFCs in the northern hemisphere never caused a hole in the ozone over the artic the way 'we' in the southern hemisphere managed to damage the ozone over the antarctic? Given that the vast majority of the southern hemisphere is open water and the remainder sparsely populated continents...as opposed to the situation in the northern hemisphere.:ok:

Maybe it was all just a natural cycle?

[Bedder believeit]

Kundiawa Kakkles:
You're right that other modes of transport (road vehicles, trains, shipping) can use other forms of energy, and it stuffs me that this isn't being jumped on. Of course I only look at the simple picture. However, it all comes down to how we as a people select those that will govern (?) us. Whilst we have - as at the moment - "oil" people running the World's largest economy, I don't have a lot of faith. And then of course it will be interesting to see how China and India start to soak up assets. Will they give a toss if a few "whitey's" have to lower their standards.

As for your "show me proof", well I can't, I just have to take in what I see and read around me. As you say, the Earth has been evolving and changing since day 1, but we humans are a part of that change, and evolution. Whilst we were all "bush kanaka's" at one stage and impacting little on anything other than our immediate environment, I am sure that this is no longer the case, and we are changing the earth with the way we utilise resources, for good or bad.

I wish us all luck with your $5 a bbl oil prediction, and once again you are correct, if cars etc could be magically transformed to hybrid/bio-diesel, then this would help a lot. However the projections I read is that this won't happen for another 20 years, and then for only about 20% of vehicles....Might be too late by then!!

Far Canard alluded to WW3 in his post...far canal!

[Speeds high]

thank god for some honest balance :ok:

[Chimbu chuckles]

I just have to take in what I see and read around me

That is the problem...mainstream media is not getting the whole story out. There is a left wing 'assumption' that anthropogenic global warming is a given...an undesputable fact...when it is anything but.

I wish us all luck with your $5 a bbl oil prediction

I make no such prediction. I simply draw your attention to what would likely happen in the, unlikely, case of most cars being so converted.

That hyperthetical can't actually happen for a bunch of reasons;

1/. It would take a lot longer than 'several years' for the market to roll over old technology with newer technology...1/2 the population just aint gonna trade their 3 year old vehicles in on hydrids in the next few years...nor should they.

2/. Govts and massively cashed up oil companies would never let demand desert oil at such a rate....it would bankrupt too many developing countries and a few enormous companies. They will manage the oil price so demand is maintained and prices held reasonable stable over time...the odd 'oil shock' not withstanding. That is ok too...if we reduce car dependance on oil by 20% in 20 years that will be more than enough to see oil prices depressed and reserves a non issue. Cars use, BY FAR, most of the oil...there are multitudinous option for driving cars besides oil...I recently saw a thing on CNBC about 'game changing' technologies. Those technologies that come along every generation or so that really force huge changes...oil was one..otherwise we would be knee deep in horse **** and our lungs would be clogged with coal dust....remember oil and it's associated transformation of the way humanity functions is the main reason we are living in a world as clean as we are. Compare any European city now to 100 years ago if you doubt that.

The particularly interesting technology, among the 4 or 5 mentioned, was new electric car technologies that will transform electric cars into truly viable alternatives to oil powered ones...i.e they will drive like our current cars in terms of speed, acceleration and range. I cannot remember the nuts and bolts of it now but it was huge...and not just pie in the sky theory...it was proven to work and all that was needed was to scale it up...that being the case you can bet Exxon, Mobil or BP will be looking to buy it and bury it...lets hope the owners of the technology patent will take a longer view and not go for being instant multi millionaires but rather let time turn them into billionaires.

Peak Oil doomsayer predictions just do not stand up to basic logic let alone fundamental cause and effect...and neither does anthropogenic global warming.

As an example given the current high profile, bordering on all pervasive, peak oil doomsayer BS is it not logical to suggest economies on the cusp of hugeness, like China, won't structure themselves in suc a way as to be far less reliant on oil than the west has been...the population is starting virtually from scratch in the car ownership area...if 30% of the new cars sold in China are latest technology hybrid etc vehicles over the next 20 years will their demand for oil ever approach what it has been in the US in the last 20? On top of that 30% of Chinese vehicles you can be absolutely certain that the remaining 70% will be made up of small, efficient vehicles, diesels, LPG or just your average modern 4 cylinder that runs on the smell of an oily rag.

They will do that just out of basic economic self interest.

[Bedder believeit]

Hell Kundiawa, you're making me feel better already....now Desmotronic, if you wanna start another poser thread, could you please make it something like "Does anybody know where the next CWA meeting is?". Mind you, you did ask for "Industry professionals" to opine, and I guess you got what you asked for.

[Out-of-balance]

:zzz: Wonder how many $10.00 tickets Tiger can sell before they turn into a pussy cat:{



Oct. 31 (Bloomberg) -- Crude oil rose to a record $94.74 barrel in New York after an Energy Department report showed that U.S. inventories fell to a two-year low. Today's 4.6 percent gain was the biggest since Jan. 30.
Stockpiles dropped 3.89 million barrels to 312.7 million barrels last week, the department said. It was the lowest since October 2005. A 400,000 barrel gain was expected, according to a Bloomberg News survey. Supplies at Cushing, Oklahoma, the delivery point for New York futures, fell 17 percent.
``We've lost a lot of oil at a time when we should be building supply for winter,'' said Phil Flynn, a senior trader at Alaron Trading Corp. in Chicago. ``Nearly all the analysts expected inventories to rise, making this an extremely bullish number.''
Crude oil for December delivery rose $4.15 to settle at $94.53 barrel at 2:50 p.m. on the New York Mercantile Exchange. Futures touched $94.74 the highest since trading began in 1983. The exchange reported a high of $94.80 during the session and subsequently canceled the trade.
Oil rose 16 percent in October, the biggest one-month gain since September 2004. Prices are up 61 percent from a year ago.
The futures plunged 3.4 percent yesterday after Goldman Sachs Group Inc., which said in July oil may reach $95 a barrel, told clients it was ``time to take profits.''
``The DOE report was the catalyst for this breakout,'' said John Kilduff, vice president of risk management at MF Global Ltd. in New York. ``Prices are also up because of the falling dollar and strong GDP number, which is a sign that demand will pick up. Economic growth both here and abroad are leaving us vulnerable to the myriad of supply threats out there.''
Economic Growth
Economic growth in the U.S. unexpectedly accelerated in the third quarter as increases in exports, consumer spending and investment made up for another plunge in home construction, a government report today showed. Gross domestic product grew at an annual rate of 3.9 percent in the quarter, the most since the first three months of 2006.
Oil inventories at Cushing, where West Texas Intermediate and other sweet, or low-sulfur, grades of oil are delivered for the futures market, dropped to 15.1 million barrels, the lowest since October 2005. Today's decline was the biggest since November 2004, Energy Department data show.
``There is no reason I can think of for a refiner to buy a single barrel to put a barrel in inventories,'' said Tim Evans, an analyst with Citigroup Global Markets Inc. in New York. ``Crude oil is expensive, refinery margins are weak, product inventories are rising anyway and backwardation makes it very dangerous to hold into oil.''
Backwardation
New York crude oil futures closest to delivery are more expensive than the prices for contracts for later delivery, a condition known as backwardation. During the first half of the year the market was in contango, where oil for future delivery is higher than near-month prices. Contango trading encourages companies to increase stockpiles.
``The bottom line is that there isn't enough sweet crude to meet demand,'' said Ric Navy, a broker at BNP Paribas SA in New York. ``We've almost erased yesterday's correction and may get another leg up if the Fed makes an interest rate cut.''
The Federal Reserve today announced a quarter-point interest rate reduction to bolster economic growth. Crude-oil surged and the dollar plunged after the Federal Reserve cut its benchmark interest rate by half a percentage point on Sept. 18, more than economists had predicted.
Weak Dollar
``When the dollar is weak, a lot of overseas investors seek a safe haven in commodities, such as gold and oil,'' said James Ritterbusch, president of Ritterbusch & Associates in Galena, Illinois. ``Falling interest rates also have bullish implications for demand because it may boost economic growth. A weak dollar also cushions European consumers somewhat against higher prices.''
Brent crude oil for December settlement rose $3.19, or 3.7 percent, to $90.63 a barrel on the London-based ICE Futures Europe exchange, a record close. Brent reached $90.94 a barrel during today's session, a record intraday price.
The Organization of Petroleum Exporting Countries agreed last month to raise output by 500,000 barrels a day starting tomorrow to help ease prices that threaten economic growth. The move failed and prices have jumped 17 percent since the Sept. 11 announcement of the increase.
``Global demand for oil largely exceeds the production of non-OPEC countries and the difference is not matched by OPEC, so there is tension on the market,'' said Harry Tchilinguirian, an analyst at BNP Paribas in London. ``Oil-consuming countries will certainly be putting pressure on OPEC to increase output, but in the short term we don't anticipate a production increase above 500,000 barrels a day.''

[Paper Planes]

Wonder how many $10.00 tickets Tiger can sell before they turn into a pussy cat

Well we all know these $10 fares are not about making money. It's all marketing to convince the public to fly with them. Maybe they will have a shorter marketing campaign now :{

[desmotronic]

:rolleyes: yep you bedder believe it...



01/11/07

COMMODITIES ANALYSIS; OIL PRICE


Crude oil prices surged higher on Wednesday after the US government reported an unexpectedly large drawdown in inventories for the week ending 26 October. By the close in London front month WTI was trading at a record US$94.40/bbl (up $4/bbl) and Brent was at a new all time high of US$91.70/bbl. According to the DoE inventory data, crude stocks fell by 3.9 million barrels (market expected a build of 600,000 barrels – Reuters) with the biggest portion of the drawdown occurring at Cushing, Oklahoma, the delivery hub for oil traded on the New York Mercantile Exchange, where stocks fell by 3.1 million barrels to 15.1 million barrels. Short term price risk for crude remains positive with traders reporting strong interest in December options at US$100 strikes.

[Out-of-balance]

:ugh:Paper Planes - I should have been more specific and you're 100% correct that we all know $10.00 fares are driven by building brand awarenesss.

However, if this oil price continues to move higher then you correctly point out that these initiatives will be cut very short. LCC's are high-volume low-margin businesses & the effect of higher oil prices MUST be passed on.

The point I was trying to make is that Tiger is offering these insane fares at not tomorrows pax but next years. They haven't even got an AOC yet.... We all know who they're backed by but I reckon if the price of oil stays up here the time a pax gets to Hobart next year it will be cheaper to fly home with JQ or DJ - So explain to me how they make that work? :confused:

[Torres]

It's "Omkalai". And it has been closed for some years.

:}

[Slasher]

For mathematical proof that man-made global warming is
crap, go here -

http://front.math.ucdavis.edu/author/R.Tscheuschner

Download Article 1 "Falsification Of The Atmospheric CO2
Greenhouse Effects Within The Frame Of Physics".

If the math is too heavey for some, read the summarys
which are written after the proofs. The summarys are on
the money with the math.

[Track Coastal]

If their hedging strategy is appropriate, which I assume is taking quite a number of long positions at the NYMEX, it shouldn't be an issue.

[satos]

A good business first gets the people on board then slugs up the prices.

[Chimbu chuckles]

$94/bbl is only a record if you ignore the inflationary effects of profligate printing of US$ by the US Govt to pay for their wars. Oil was relatively a LOT more expensive that currently in the 70s and again in the 80s. The world didn't end then and it won't now.

The US$ has probably depreciated 30% in the last 5 yrs...the value of the US$ is not backed by anything other than good will/reputation since Nixon delinked it from the Gold standard in the 70s...as the US Federal reserve runs the presses day and night each additional $ in circulation is worth a little less..and hence people, quite reasonably, want more of them for their goods...in this case oil.

That and market manipulation caused by security concerns, whether real or imagined, and a supply/demand equation depressed by quite deliberate closing down of refineries and it becomes obvious what the price would likely be except for the dickheads running the planet.:ugh:

[speedjet]

The important thing to remember is that along with oil prices going up so has the value of the Australian Dollar compared to the US Dollar. 12 months ago it was mid 70cents, so aircraft spares are also a lot cheaper for airlines now. For every $1000US they spend now, they are $300AUD cheaper compared to 12 months ago

[Jet_A_Knight]

Maybe OPEC should start to trade oil in Euros:D

Oh, I just remembered what happended to the last mob who wanted to do that:ooh:

Operation Iraqi Freedom.:ouch:

[oicur12]

Chimbu,

Your comments are spot on. The FED is pumping out dollars to keep the current account defecit in check. Oil producing nations are dragging thier feet wrt output quotas as a higher market rate is required to counter the sliding greenback.

Which leads on to what Jet a Knight says about OPEC needing to find an alternative currency to the greenback. Iraq found out the hard way of what happens when you move beyond the system that ensures US dollar hegemony. Hopefully Iran will take note and abandon its plan for a Euro based bourse.

The sabre rattling in the ME is exclusively about oil. WMD/Nukes have stuff all to do with it. Every CEO of the ruling elite west knows this which explains why so many western multinationals and governments are supportive of military intervention despite any moral misgivings they may have.

[desmotronic]

NEW YORK (CNNMoney.com) -- Oil leaped into uncharted territory Friday, soaring past the $126-a-barrel mark for the first time, and leaving analysts and investors wondering how high the price will go.

U.S. light crude futures for June delivery hit an intraday record $126.20 in electronic trading, and set a settlement mark at $125.96. That was $2.27 above Thursday's prior record close of $123.69 a barrel.

Continued concerns about supply, particularly from Venezuela in the face of reports that President Hugo Chavez's support of Colombian rebels could threaten the flow of oil to the United States.

The price of a barrel of crude oil has more than doubled in the past year. On May 9, 2007, the active contract settled at $61.55 a barrel.

And if oil has doubled in the past year, what has to happen for oil to hit $150 a barrel?

"This rally has really blown a lot of people's minds," said Andrew Lebow, energy broker at MF Global (MF). "You talk about $150 even a few weeks ago and people say you are a lunatic."



........:oh:

[flyer_18-737]

I see tiger selling 19.95 fares today, mmmm:eek:

[Flyingblind]

Lot of people talking about A$2 a litre around Christmas, interesting to see how high airlines can get the fuel surcharge up to before pax start to baulk at the real cost of airline travel.

[Ultralights]

if fuel is $2 a ltr, and im sure it will get there before christmas, then air travel will still seam cheap even with large fuel surcharges.

interesting to see a post on the first page written in November, predicting $46 a barrel in 6 months.... well, its 6 months, and over $120!

[Thylacine]

Those who predict the future should be required to wear a wizard's hat and make conjuring sounds over a crystal ball. That way, everybody would know exactly what's really going on and how much credibility to give their answer!

[WELLCONCERNED]

Gentlepersons,

From IATA's website:

As of the 2nd of May, the current average jet fuel price is USD$143.20 per barrel - which is USD$1128.50 per metric tonne. That is a 69% increase on this time last year.

Further, the IATA averaged price of fuel for 2008 is $125.50 a barrel - at which price the cost to the airlines is USD65 billion more than last year - that's USD$65,000,000,000!!!!!

I understand from Qantas' web-site that they've hedged for the next few years at USD$90 a barrel - lucky them!! Spare a thought for the big US carriers who are operating so close to the bone that they haven't got the cash to hedge against fuel prices.

Fuel makes up about 40% of Qantas' operating costs - but for the low cost carriers - like Tiger - it now makes up 60%!! Any fluctuation on fuel price is BAD news for low cost carriers!

Watch the low cost carrier world fall apart in the next 12 months......

[desmotronic]

Ultralights,
That was Nov 2006. 18 months ago.

Wellconcerned,
Not so sure about that, more likley fuel surcharges will continue to rise so the cost is passed on to the consumer. The airlines who will struggle are those with the older less fuel efficient aircraft. QF must be bleeding about the dreamliner!

[Old 'Un]

Interesting that Air NZ took a hit in court in NZ a little while ago for advertising airfares, A to B, of $X. Then, in small print, "plus a fuel surcharge of $Y and levies $Z". Apart from the fact that the small print significantly altered the cost of the service (and was therefore contrary to the Fair Trading Act), the courts took the view that the cost of fuel was a normal operating cost for the airline and should therefore be included in the published fare. The fine was in the order of $NZ600,000 if my memory serves me. (I stand to be corrected on that figure).

Interestingly, other airlines that had been advertising using the same format were looked at closely by the Commerce Commission (which took the case against Air NZ to court) for possible prosecution on the same basis.

I recently booked international travel for Mrs Old 'Un and me to visit family in Britain and queried the possibility of being hit with a "surcharge" (for fuel cost increases) closer to or at departure date. I was told by the travel agent that this could not happen. A quick check of T & Cs by a legal eagle friend confirmed that there was no mechanism within the contract formed between me and the airline when I paid the fare to allow for such an increase.

He advised that any fare published as "plus fuel surcharge" (in NZ at least) would be skating on extremely thin (legal) ice given the Air NZ case, and further it could be argued that any surcharge would be limited to the rate that applied at the time the contract was made.

Perhaps someone with training in contract law could confirm or otherwise the accuracy of what I have been told.

I guess the bottom line is: be careful of what you're letting yourself in for in regards to any "surcharge" contained in a contract that will not be executed until a date considerably in the future.

Sorry, a bit of thread drift there, but it does relate to the price of oil and how increases affect the aviation community.

Le Vieux

[Ultralights]

on a bit of a tangent, but still related, in the latest budget, "New" government and increasing diesel fuel taxes from 1st of Jan 2009.

just what the community needs!! with many ppl buying economical Diesel cars, not to mention the inflationary pressure bought on by increaded price of everything transported by road!

smart move....

dont get me started on LPG, Australias LPG is 100% supplied by Bass straight, only 30% is needed locally, the rest is exported!....yet its price is linked at the bowser to the singapore Oil price by the oil companies. !!! LPG prices at the pump vary daily, yet it is actually priced against the Saudi market set price, which is changed only Monthly......

[sprocket check]

Now it is an interesting read following the debate from last year. Who was that predicting $42, what, about now???

[indamiddle]

to desmotronic who started this thread in nov '06.
do u have any sharemarket tips

[Octane]

Still cheaper than Coke or bottled water................

[desmotronic]

Indamiddle,
Sure do, it's not rocket science, but I don't work for free. Will trade for an airline captain written reference. Happy to receive PMs. :ok:

[WELLCONCERNED]

The critical element in this is not just the price of oil - but the price of jet fuel.

Jet fuel is a distillate of oil that sits just between heating oil [kerosene] and diesel fuel. Traditionally, the market has been driven by seasonal trends in the US - in summer, if demand is high, there is pressure on refiners to spill the aviation distillate into deisel. In winter, if demand is high, there is pressure on refiners to spill the aviation distillate into heating oil.

Why? Because for refineries, it is not just a case of cracking aviation distillate from the oil and selling it - there's a lot of additional processes required to ensure it meets aviation fuel standards [don't want a fuel blockage at 30,000 feet!!]. In many cases, it is simpler for refiners to just mix the aviation distillate into the next grade [up or down] and cut out the hassle.

That's why there is a premium of aviation distillate. Oil is $125 a barrel - jet fuel is $155 a barrel - a $30 premium. That premium has been growing steadily [for the reasons I mentioned] over the last 2 years - so that if Oil hits $150 a barrel, jet fuel may well hit $200 a barrel.

There are two other factors [not variables - they are fixed]. The shaping of the market - traditionally brought about by US seasonal factors - is now coming from super demand from India and China. That has swamped the market.

The second - and most critical - is refining capability. The US hasn't built a new refinery in over 20 years - and the current refining cycle shows refineries in the 'States operating at around 94% - that is, they are refining 94% of each and every day [on average]. Normal scheduled maintenance cycling demands that refineries operate around $85% efficiency - so, refineries are operating beyond maintenance requirements - and you can guess what's going to happen.

There have been very few refineries built in other parts of the world, for a whole host of reasons [environment in Europe, security in Africa, cost in South America]. Even some of the biggest oil exporters [Iran is a good example] export lots of oil - but have to import petrol and deisel.

A third factor in all this is the weakness of the US dollar. Oil has [almost] always been sold in US dollars. With the weakening of the US dollar, the purchasing power of oil producers has been eroded by over 30% in the last 2 years. They need oil to be 'overpriced' by $30 just to match where they were 2 years ago. You should also look at the long term price of oil versus the global economy [and I'm talking 150 years] - in relative terms, oil is still cheaper than it was in 1900!

Taking all of this into account, it is my prediction that oil will reach $200 a barrel by early 2009, with jet fuel hitting $250 a barrel. And when petrol hits $5.00 a gallon at the petrol pump in the US - look out! Watch the US economy dive!

[Quokka]

to desmotronic who started this thread in nov '06.
do u have any sharemarket tips

I do... :E

[WELLCONCERNED]

Overnight, oil hit USD$135 a barrel for deliveries in November 2008. Remember, this is the start of the cool season in the northern hemisphere.

A US forecaster has now predicted oil will reach USD$200 a barrel by mid-2009.

This will mean that jet juel will hit USD$250 a barrel - 60% more than current price - and 250% more than the price this time last year.

The airlines cannot - and will not - sustain this - and the travelling public, already hard hit by domestic prolems like petrol, grocery and mortgage costs, will abandon air travel - even ultra low cost air travel - in droves.

If you have airline stock, then I'd suggest you give SERIOUS consideration to how long you intend to keep it. Look for small start-up companies doing innovative research into new sources of oil (exploration companies) or alternative energy.

Oh - and I notice there is another thread starting on this subject that scoffs at the claims that we will reach so-called 'peak oil' in 2015. The truth is, we have already passed 'peak oil' - that is why oil is no longer (and will never return to) USD$20 a barrel.

Predictions for the end of 2008: Australians will be paying $2.00 a litre for petrol. At least one new start low cost carrier will abandon Australia. Qantas cost-cutting will become even more vicious. Aviation training will dry up. GA flying hours will plummet.

If you were smart, you'd pool with your friends, put in $10,000 each, and buy a 50,000 gallon tank of petrol now [yes, it is possible to do - and your local service station can make arrangements]. It's the equivalent of fuel hedging, and you'll save a small fortune - and you'll be driving when others can't.

[haughtney1]

I'm currently selling my Oil stocks...................

The price is gonna crash pretty soon...(if it doesn't, forget an airline industry..I'm gonna take up sleeping)

[crank1000]

I'm glad this is a rumour network because I heard from a fueller at my local aerodrome that QF only pay $90US a barrel for Big shiny plane fuel. This is apparently because they hedged thier fuel price for 5 years!

If this is true it would be interesting to see if they increase the "surcharge" because of rising costs.

Just remember this quote has no hard core facts attached to it. The guy could be winding me up.

Anyone set me straight?

[haughtney1]

A very interesting Article (http://www.marketoracle.co.uk/Article4793.html)

I've researched the verifiable demand statistics mentioned in the article...and as far as is public..they appear to be accurate.

[desmotronic]

AMR SLASHES CAPACITY AS FUEL COSTS SOAR

Announces new round of flight schedule reductions and additional customer service fees at American Airlines in face of crippling jet fuel prices and weak economy. CEO warns of further cuts if conditions worsen. Shares tumble 25%.

[WELLCONCERNED]

Haughtney 1,

Try looking at the following site. It gives a good historical perspective on the price of oil, and the factors that influence it:

http://www.wtrg.com/prices.htm

Crank 1000,

You are correct - Qantas [like a number of other airlines] has hedged, and continues to hedge, fuel. In Qantas' case, they have various amounts of fuel hedged at a range of prices - some is hedged at $90 a barrel.

The problem with hedging is that you actually have to pay for the oil now even if you won't use it for 3 or 4 years. This means a significant cash outlay - which a lot of airlines can't afford. It would be almost impossible for Qantas to hedge 100% of its fuel - at over USD$4BN a year [QF estimate of its fuel bill] they would be broke in no time [or maybe they could get staff to work gratis?]. I suspect QF has hedged around 20% of its fuel at $90 a barrel.

Spare a thought for US carriers in or about to come out of chapter 11 protection. They aren't allowed to hedge fuel, because they have no cash [or aren't supposed to have any, anyway] - and they can't borrow [they're technically bankrupt].

Spare a thought also for the LCCs. Most of their assets are leased [aircraft, facilities, etc] and they have nothing to put up as collateral against borrowing to hedge. So, they're truly at the mercy of the market.

I'm sure you've seen those TV programs where the crew has to take a whip-around from the passengers to buy fuel to get them out of some foreign location - well it may start happening on a more regular basis when the LCCs start facing up to the reality of fuel prices.

Tootle Pip!

[Launch_code_Harry]

haughtney1, another good website is [/URL][URL="http://oil-gasoline.typepad.com/george_clemen_oilgasoline/"]George Clemen - Oil-gasoline.com (http://oil-gasoline.typepad.com/george_clemen_oilgasoline/) .

[100hours]

The amazing thing is when I fly around at my local airfield, I see MORE and more planes fly every saturday. It just gets busier. I would really have thought that the people would fly less ... but NO.

My biggest fear is the impact of these oil prices on the GA community. As the price just goes up people who used to fly once a week will start flying once every 3 weeks ... because the rate at which the price goes up is exponential.

Maybe there is a light somewhere at the end of the tunnel ? or NOT ?

[Ultralights]

GA flying hours will plummet

that rotax 914 burning 15 ltrs an hour will look real attractive soon!

[WELLCONCERNED]

Crank 1000

Here's a quote from today's Australian [sorry to bring GD into the thread]:

“Oil and jet fuel prices continue to break records, with West Texas Intermediate spot crude oil passing $US134 a barrel overnight and Singapore Jet Fuel today trading at nearly $US166 a barrel,” he said.

Mr Dixon said Qantas had increased its fuel hedging and was now covered for 59 per cent of expected crude oil requirements in 2008/09 at $US111.81 a barrel, inclusive of option premium.

“Despite our hedging activities, fare increase, surcharges and strong focus on managing costs across our operations, we will not cover these higher fuel costs, which at current prices will add more than $2 billion to our fuel bill in 2008/09,” he said.

[WELLCONCERNED]

From today's Melbourne Age:

Virgin Blue will go bankrupt unless it can dramatically raise airfares, if fuel prices remain at current levels into the longer term, JPMorgan has warned.
Days after the broker UBS warned the airline could need a cash injection from its shareholders in 2009-10, if jet fuel prices fail to retreat, JPMorgan said a capital raising would be "pointless'' and would fail to keep the airline solvent.

"A 5% [air fare] rise is not enough to cover fuel costs. A $500 million equity injection would buy some time in hope that fuel costs fall but if fuel did not fall Virgin Blue on our analysis would eventually become insolvent despite the equity injection,'' the broker said.

If fares do not rise, JPMorgan predicted the airline's negative cash flows would result in its net debt to spiral from $1 billion to $3.2 billion by 2015.

The only way to "save the company'' JPMorgan said would be for Virgin Blue to impose a 10% fare increase.

"While we would expect Virgin Blue to survive under this scenario, its earnings profile hardly looks attractive,'' the broker said, noting the airline's profit would never reach its 2006-07 record net profit of $232 million.

Even in this situation, JPMorgan said Virgin Blue would post a meagre $30 million profit next financial year.

The main obstacle Virgin Blue has in raising fares is the likely impact of demand and its ability to fill its growing fleet.

If Virgin Blue raises fares, it could be forced to cut some aircraft out of its fleet to deal with the likely fall in demand. The airline has 33 jets on order.

[desmotronic]

By Bill Rigby , Fri 06-Jun-2008 07:05

After three years of record plane sales, Boeing Co's orders are showing signs of slipping as the world's airlines scramble to survive soaring oil prices.

The top four US airlines are planning to slash flights, lay off workers and retire older planes this winter as they look to cut their fuel bills, moves likely to be followed by overseas carriers.

Boeing says demand for its new, more fuel-efficient planes will stay strong, but airlines are showing signs of alarm as jet fuel hovers above $US150 a barrel, adding billions of dollars to airlines' operating expenses.

Amid talk of mergers and bankruptcies, new plane orders have started to slow and analysts' outlook for the next three to four years has darkened.

"The airlines are having a hell of a rough time, which means they will continue being weak financially," said Paul Nisbet at aerospace specialists JSA Research. "The US airlines in particular are going to have to delay further buying airplanes."

It's too early to call it a disaster for Boeing, said Nisbet, given that a dip in orders was already expected after the boom, and that Boeing has a record $US271 billion ($A282.6 billion) worth of jetliner orders on its books.

But the situation could become serious if oil stayed high and economic weakness in the United States spread to the rest of the world, according to analysts.

"Although the Boeing backlog is currently huge, we expect declining orders and delivery deferrals to result in a flattening off in production from 2010," said Macquarie Capital's Rob Stallard in a research note on Thursday. That would signal "the end of this aerospace up-cycle," he added.

Boeing shares fell 82 US cents or 1.1 per cent to $US77.20 in late afternoon trading on the New York Stock Exchange on Thursday. The stock is down 28 per cent since its all-time high in July last year.

Airlines signed up to buy 67 new aircraft from Boeing in May, compared with 92 in the same month a year ago, according to the latest update of the plane maker's online order book.

It sold 61 of its single-aisle 737s, mostly to unidentified customers, plus six of its 777 minijumbos. It took no orders for its new 787 Dreamliner, which is now at least 15 months behind schedule and not set to fly until later this year.

Boeing had 414 commercial plane orders at the end of May, in line with the 417 it had at the same time last year, which turned out to be its best year ever, with 1,413 net orders.

But the pace of orders has slowed from a brisk start in the first three months of the year, and few are expecting that Britain's Farnborough International Airshow in July - where airlines like to unveil big orders - will be a blow-out this year.

Boeing's main rival Airbus, a unit of European aerospace group EADS, has not yet felt a decline. According to the latest available figures, it had 397 net new orders for the year at the end of April, higher than the same time last year.

Boeing's chief concern is that airlines in the United States and Europe are aggressively cutting flights and scaling back capacity, which are the main indicators of industry growth and, ultimately, demand for planes.

Carriers in Asia and the Middle East, Boeing's strongest-growing markets in the past few years, have not shown signs of weakness so far, but high oil prices could eventually hurt them too.

"Our leading concern is outside the United States, if there is a global recession," said Douglas Harned at Sanford C. Bernstein in a research report. "Non-US (plane) orders are more for growth than replacement, and economic weakness could lower expectations."

If the rest of the world did follow US airlines, the market for new planes could grow much more slowly than Boeing has been expecting.

On Thursday, Continental Airlines Inc announced a 16 per cent cut in domestic flights this winter, following similar moves by AMR Corp's American Airlines, UAL Corp's United Airlines and Delta Air Lines Inc in the last few weeks.

Discount carriers JetBlue Airways Corp and AirTran Holdings Inc have deferred new plane deliveries and trimmed their expansion plans.

European carriers have not reacted so drastically, but more cuts in services are expected.

German discount carrier Air Berlin, a big customer for Boeing's 787, said last week it would scrap unprofitable routes, while Ireland's Ryanair Holdings Plc - Europe's biggest low-cost airline - is planning to ground as much as 10 per cent of its fleet. British Airways Plc's chief executive said last month that capacity cuts this winter were "inevitable."

Airlines are hoping that cutting flights will help them survive a brief spike in oil prices, but Boeing would have a major problem if that failed, or economic weakness spread.

"If history is a guide, it is gross domestic product that matters, not rising fuel prices alone," said Bernstein's Harned. "Short-term capacity cuts should not hurt the cycle. The greatest risk is in 2011-2012."

[Thylacine]

According to Comsec, as at July 2007, 75% of the Australia’s top 200 companies had corporate accounts with Virgin Blue and while they only had 5% of government business at that time this sector is being vigorously targeted with the introduction of the Embraer into Canberra.

Contrary to some previous posts Virgin does has some fleet flexibility. In FY08 VBA’s fleet will be 46% leased and over the following 12 months it will have the option to exit some of these leases.
Virgin has 19 options on Embraers, of which 7 have been delivered but if need be some of those could be deferred or cancelled.
By utilising the Embraers, Virgin will be able to match capacity on routes where load factors drop or operate them on trunk routes during off peak times. Virgin has identified 18% of the Australian market that it does not currently serve and could operate more direct services bypassing hubs.
This strategy is not so readily available to Qantas, where up until now it has withdrawn from unprofitable or non-business routes in favour of Jetstar who still operate aircraft of a similar size.
Virgin has 49% of its fuel hedged in FY08 although I can find no information on their situation in FY 09.