the f-word
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the f-word
according to Bloomberg and FT, CX is one of the "unlucky" carriers that did hedge only a small portion of their fuel bills in 2008.
FT.com / Companies / Transport - Rising oil upsets Asian airlines’ hedges
nobody has a christall ball of course, but that is not very impressive indeed..
FT.com / Companies / Transport - Rising oil upsets Asian airlines’ hedges
nobody has a christall ball of course, but that is not very impressive indeed..
sisyphos
That whole article is based on the pretence that “should” oil prices remain as high as they are then some airlines that have low hedging this year will find it tough. The reality is that oil won’t remain this high. The current high oil prices don’t reflect the true fundamentals of supply and demand. Given the recent volatility in the oil price it is obvious speculators are the ones driving up the price to unsustainable levels given the current gloomy world wide economic climate. They will fall and when they do carriers like CX who have effectively taken a bet that they will fall as well, will fall squarely on their feet. Those carriers that have over hedged will then be the ones at a financial disadvantage.
That whole article is based on the pretence that “should” oil prices remain as high as they are then some airlines that have low hedging this year will find it tough. The reality is that oil won’t remain this high. The current high oil prices don’t reflect the true fundamentals of supply and demand. Given the recent volatility in the oil price it is obvious speculators are the ones driving up the price to unsustainable levels given the current gloomy world wide economic climate. They will fall and when they do carriers like CX who have effectively taken a bet that they will fall as well, will fall squarely on their feet. Those carriers that have over hedged will then be the ones at a financial disadvantage.
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404 Titan
Like many, you seem to speak with authority regarding markets; but offer no specifics, just bland statements that, upon review, can mean anything.
You say oil prices will fall.... Care to specify when?.... days... months or years.....
Equally, if oil prices fell to $135, would that constitute a fall in your book? Again... care to specify a price range.
Further, there is a relationship beween the price of oil and the USD. You have previously stated the USD has, alternatively, is about to rise, any specifics, or has the USDs very modest rise, from its recent historic lows, already fulfilled your prophecy.....?
You say oil prices will fall.... Care to specify when?.... days... months or years.....
Equally, if oil prices fell to $135, would that constitute a fall in your book? Again... care to specify a price range.
Further, there is a relationship beween the price of oil and the USD. You have previously stated the USD has, alternatively, is about to rise, any specifics, or has the USDs very modest rise, from its recent historic lows, already fulfilled your prophecy.....?
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What 404 says is just his opinion - it does happen to be an opinion that I share and he is far more experienced in these matters than most.
If someone can give me an economic reason why oil should be twice what it was a year ago or 10 times what it was a decade ago I would love to hear it. Has demand doubled in the last year? Has demand gone up 10 fold in the last decade. My favourite argument is the one that goes "they aren't making any more oil". Well, I heard that argument used to explain Aussie coastal real estate going up a few years ago....funny thing was they haven't been making new coastline for 1,000s of years and suddenly, on the same day, every Aussie realised that and coastal real estate doubled in two years.
Every bubble climbs on sophistic reasoning....this one will be no different.
By the way - gold is triple what it was five years ago and yet many gold miners have gone bust - want to know why? They over hedged at lower price levels than what it got to. Price of gold triples and they go broke because it went up too much! If CX hedged 100% of its oil for 2009 and the oil price dropped to half what it is, then CX would make a massive loss as it would no longer be able to charge a fuel surcharge and would have to price competitively vs other unhedged carriers. When a cost of production has risen to what is generally perceived to be exceptional and unsustainable highs, the best bet is to hedge nothing and wait. If it stays up at current levels all other airlines that hedged at this level are no better off than those that didn't hedge. If it falls, those that hedged get burned. If it climbs those that hedged win. But remember, hedging is about finance whereas airlines are about moving people and freight. Many big companies have gone broke in the past from paying more attention to hedging than to their primary business!
Liam, as to your request, a lot lower than what it is today - probably around 50 - 80. As to when - it will fall on a Tuesday - but possibly a Wednesday! ;-) No one can predict the future....all I know is that the fundamentals don't justify the levels we are at now. But that does not mean it can't go much higher....just remember the dot com when we went from astronomical PE ratios to astronomical Price to Sales ratios....anything is possible in a bubble.
As to the current correlation between Oil and the USD - it hasn't existed for most of the last decade...it is only in the last few months that there has been any high correlation. There used to be a correlation between which conference team won the superbowl and whether the DJIA was up or down that year - cause and effect or stochastic?
If someone can give me an economic reason why oil should be twice what it was a year ago or 10 times what it was a decade ago I would love to hear it. Has demand doubled in the last year? Has demand gone up 10 fold in the last decade. My favourite argument is the one that goes "they aren't making any more oil". Well, I heard that argument used to explain Aussie coastal real estate going up a few years ago....funny thing was they haven't been making new coastline for 1,000s of years and suddenly, on the same day, every Aussie realised that and coastal real estate doubled in two years.
Every bubble climbs on sophistic reasoning....this one will be no different.
By the way - gold is triple what it was five years ago and yet many gold miners have gone bust - want to know why? They over hedged at lower price levels than what it got to. Price of gold triples and they go broke because it went up too much! If CX hedged 100% of its oil for 2009 and the oil price dropped to half what it is, then CX would make a massive loss as it would no longer be able to charge a fuel surcharge and would have to price competitively vs other unhedged carriers. When a cost of production has risen to what is generally perceived to be exceptional and unsustainable highs, the best bet is to hedge nothing and wait. If it stays up at current levels all other airlines that hedged at this level are no better off than those that didn't hedge. If it falls, those that hedged get burned. If it climbs those that hedged win. But remember, hedging is about finance whereas airlines are about moving people and freight. Many big companies have gone broke in the past from paying more attention to hedging than to their primary business!
Liam, as to your request, a lot lower than what it is today - probably around 50 - 80. As to when - it will fall on a Tuesday - but possibly a Wednesday! ;-) No one can predict the future....all I know is that the fundamentals don't justify the levels we are at now. But that does not mean it can't go much higher....just remember the dot com when we went from astronomical PE ratios to astronomical Price to Sales ratios....anything is possible in a bubble.
As to the current correlation between Oil and the USD - it hasn't existed for most of the last decade...it is only in the last few months that there has been any high correlation. There used to be a correlation between which conference team won the superbowl and whether the DJIA was up or down that year - cause and effect or stochastic?
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NC
As always, thanks for the reply....
The point I am making... that you are missing... I daily read bland comments like 404 makes, and that is what they are; bland comments. They are bland by design; the author can never be wrong; equally the reader can never design a strategy around the info.
Should he care to a put a timeframe on any of his predictions, I will take notice. In the meantime, I know, as does everyone else on the planet, that the price of oil will drop below its current level, equally it will rise above its current level... USD similarly.... can I design a strategy around this...??
As an aside; there is certainly a link between oil price and the USD, because oil is priced in USD. It should be of no surprise that as the USD drops, oil producers raise the price to preserve value. Whilst I am not arguing that the decline of the USD is the main driver, it is a big factor in the price at the pump. Consider the % increase in pump prices between the US and OZ. Equally, price 2001 oil in OZ$ and price it now... not nice.. but not so ugly. As an aside.. do the same with gold... what's done better, your Oz shares or your leveraged home in SYD?
Generally, CX does well out of a weak USD, so a strengthening USD may cause the price of oil to drop, but will be of little solace to CX. It will however be of solace to some of our competitors with different cost structures.
Finally, go back and re-read your Econ 101 notes; to double the price you don't need double demand, you only need excessive demand... To answer, your question regarding the rising price of oil, look to the weak USD, growing World economy, unstable oil production, lack of investment in refining, and then overlay speculation... bingo
To those who say oil will drop back in price; if you were an oil producing nation and you had a finite quantity of oil under your country, now that you know the world will pay USD147 a barrel for it, why would you ever sell if for less? But they are never going to come out and say that..are they?..
The point I am making... that you are missing... I daily read bland comments like 404 makes, and that is what they are; bland comments. They are bland by design; the author can never be wrong; equally the reader can never design a strategy around the info.
Should he care to a put a timeframe on any of his predictions, I will take notice. In the meantime, I know, as does everyone else on the planet, that the price of oil will drop below its current level, equally it will rise above its current level... USD similarly.... can I design a strategy around this...??
As an aside; there is certainly a link between oil price and the USD, because oil is priced in USD. It should be of no surprise that as the USD drops, oil producers raise the price to preserve value. Whilst I am not arguing that the decline of the USD is the main driver, it is a big factor in the price at the pump. Consider the % increase in pump prices between the US and OZ. Equally, price 2001 oil in OZ$ and price it now... not nice.. but not so ugly. As an aside.. do the same with gold... what's done better, your Oz shares or your leveraged home in SYD?
Generally, CX does well out of a weak USD, so a strengthening USD may cause the price of oil to drop, but will be of little solace to CX. It will however be of solace to some of our competitors with different cost structures.
Finally, go back and re-read your Econ 101 notes; to double the price you don't need double demand, you only need excessive demand... To answer, your question regarding the rising price of oil, look to the weak USD, growing World economy, unstable oil production, lack of investment in refining, and then overlay speculation... bingo
To those who say oil will drop back in price; if you were an oil producing nation and you had a finite quantity of oil under your country, now that you know the world will pay USD147 a barrel for it, why would you ever sell if for less? But they are never going to come out and say that..are they?..
I wish I could accurately predict the future price of commodities. if I could, I wouldn't be a pilot!
But I think it's safe to say the current oil price is fairly 'artificial'. Why is this? One reason is that as equities lose their gloss, other forms of investment are becoming more popular. Look at how food prices rapidly rose as people got on the biofuel bandwagon. And oil is about the most lucrative. Each gallon of oil is sold several times over before it ends up in an aircraft's tanks. Hedge funds (which benifited from the financial deregulation pst 9/11) have been buying commodities for quick returns. Because despite their name, most hedge funds are managed by people who are paid mostly in bonuses based on their curent performance. They need quick returns and oil speculation is one way they can acheive this.
Will the price stay high? Who knows. But I would suggest that commodities speculation is just as risky as any investment and it could go either way. But if the speculators who are willing to take the risks (and hedge funds are having a hard time right now) become fewer in number, the price should stabilise and probably head downwards.
But I think it's safe to say the current oil price is fairly 'artificial'. Why is this? One reason is that as equities lose their gloss, other forms of investment are becoming more popular. Look at how food prices rapidly rose as people got on the biofuel bandwagon. And oil is about the most lucrative. Each gallon of oil is sold several times over before it ends up in an aircraft's tanks. Hedge funds (which benifited from the financial deregulation pst 9/11) have been buying commodities for quick returns. Because despite their name, most hedge funds are managed by people who are paid mostly in bonuses based on their curent performance. They need quick returns and oil speculation is one way they can acheive this.
Will the price stay high? Who knows. But I would suggest that commodities speculation is just as risky as any investment and it could go either way. But if the speculators who are willing to take the risks (and hedge funds are having a hard time right now) become fewer in number, the price should stabilise and probably head downwards.
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NC
"If someone can give me an economic reason why oil should be twice what it was a year ago or 10 times what it was a decade ago I would love to hear it. Has demand doubled in the last year? Has demand gone up 10 fold in the last decade. My favourite argument is the one that goes "they aren't making any more oil"."
It does not require demand to go up 10 fold for the price to so rise if the supply curve is relatively inelastic. So in the short term, "they aren't making any more oil" may be correct. For a better explanation than I can remember from my O-level economics see:
Supply and demand - Wikipedia, the free encyclopedia
"If someone can give me an economic reason why oil should be twice what it was a year ago or 10 times what it was a decade ago I would love to hear it. Has demand doubled in the last year? Has demand gone up 10 fold in the last decade. My favourite argument is the one that goes "they aren't making any more oil"."
It does not require demand to go up 10 fold for the price to so rise if the supply curve is relatively inelastic. So in the short term, "they aren't making any more oil" may be correct. For a better explanation than I can remember from my O-level economics see:
Supply and demand - Wikipedia, the free encyclopedia
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Liam,
Oil futures a few years down the track are trading less than half of todays price. Goldman Sachs is predicting after this current super spike, prices will return to the $30-$50 bracket after 2009. I think that is a little optimistic, but I think they will drop well below $100 by then, about least half of todays price in 2009.
That being said, if Iran keeps being belligerent, and conflict develops in the Strait of Hormuz, we could well see the oil price increase significantly above todays price.
Oil futures a few years down the track are trading less than half of todays price. Goldman Sachs is predicting after this current super spike, prices will return to the $30-$50 bracket after 2009. I think that is a little optimistic, but I think they will drop well below $100 by then, about least half of todays price in 2009.
That being said, if Iran keeps being belligerent, and conflict develops in the Strait of Hormuz, we could well see the oil price increase significantly above todays price.
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...most here are claiming that the 'fundamentals' don't justify the price of oil. Ecomonics 101: the market price IS what the price of oil is worth at any given time. Trying to convince yourself that the market is 'wrong' is a certain method to end up impoverished.....
Liam Gallagher
As NC has stated they are my opinions. Just like almost all economic articles you will read or hear they are the opinion of the author. I’m sorry I don’t always give specifics. Quite frankly I don’t have the time. This doesn’t mean though I haven’t researched the topic. I will therefore try and explain my logic for you.
The key player in the energy markets has traditionally been the commercial traders which comprised generally oil producers and energy companies. In the last few years, i.e. since deregulation, they have been supplemented by a growing number of investment banks and hedge funds who own energy producing facilities and also the emergence of specialised energy trading firms. These recent entrants to the energy markets have added a large source of extra liquidity and hence volatility to the market. Industry estimates are that between 2002 and 2005 they added US$100-120 billion to the energy markets. While I haven’t seen recent figures a simple extrapolation would suggest these investment banks (pension funds) and hedge funds have probably added between US$200-240 billion to the energy market since 2002. Today, for every US$100 that is invest in the energy market, only US$5 makes it to the fuel pump or in other words a single barrel of oil is traded 20 times before making it to market. Ten years ago it use to be five.
Here is a graph of the world oil price between 1947 and 2008. Have a look at how much the market corrects itself after each bubble. Make what you will from this graph but most of us can have a guess how much it will correct after this bubble has ended.
PS: If I was to have a guess when the energy market will correct I would say first half of 2009 but it is only a guess.
As NC has stated they are my opinions. Just like almost all economic articles you will read or hear they are the opinion of the author. I’m sorry I don’t always give specifics. Quite frankly I don’t have the time. This doesn’t mean though I haven’t researched the topic. I will therefore try and explain my logic for you.
The key player in the energy markets has traditionally been the commercial traders which comprised generally oil producers and energy companies. In the last few years, i.e. since deregulation, they have been supplemented by a growing number of investment banks and hedge funds who own energy producing facilities and also the emergence of specialised energy trading firms. These recent entrants to the energy markets have added a large source of extra liquidity and hence volatility to the market. Industry estimates are that between 2002 and 2005 they added US$100-120 billion to the energy markets. While I haven’t seen recent figures a simple extrapolation would suggest these investment banks (pension funds) and hedge funds have probably added between US$200-240 billion to the energy market since 2002. Today, for every US$100 that is invest in the energy market, only US$5 makes it to the fuel pump or in other words a single barrel of oil is traded 20 times before making it to market. Ten years ago it use to be five.
Here is a graph of the world oil price between 1947 and 2008. Have a look at how much the market corrects itself after each bubble. Make what you will from this graph but most of us can have a guess how much it will correct after this bubble has ended.
PS: If I was to have a guess when the energy market will correct I would say first half of 2009 but it is only a guess.
"....60% of oil prices today are from pure speculation.."
This is a good article on what is behind the spiraling oil prices:
‘Perhaps 60% of today’s oil price is pure speculation’
In a nutshell:
How easy is it to get into crude oil contracts? Just one of hundreds of sites: Traderealtime.com
‘Perhaps 60% of today’s oil price is pure speculation’
In a nutshell:
- Although demand for oil has increased over recent years, so has supply, with US crude oil inventories being at its highest level is over eight years.
- Over the past two years, global supply has in fact exceeded global demand (US Dept of Energy)
- The price of crude is now controlled by an elaborate financial market system, as well as the four major (Anglo-American) oil companies
- International oil exchanges in London and NY are crucial
- It is the buying and selling of oil futures or derivative contracts that now largely set physical oil prices
- There is a huge, gaping loophole in US Govt. regulation of oil derivatives (as found by a US Senate sub-committee)
- Persons within the US are able to avoid all US market oversighting or reporting requirements by routing trades via the ICE Futures exchange in London
- Oil prices were around $60 a barrel when this started in 2006. Two years later they are approaching $150 a barrel
- Hedge funds and banks assist in the driving up oil prices through hedging and speculation
- Speculators trade on rumour, not fact. As a result, when oil companies, refiners and countries begin to hoard oil, supplies appear even tighter, leading in turn to support higher prices.
- Goldman Sachs and Morgan Stanley are two leading energy trading firms. Citigroup and JP Morgan are major players who finance hedge funds and speculators
- Selling the US Dollar ‘short’, and oil ‘long’ is a common strategy
- With speculators pushing up futures prices, there is a financial incentive for refiners to buy additional oil today, even at a high cost, if the futures price is even higher.
How easy is it to get into crude oil contracts? Just one of hundreds of sites: Traderealtime.com
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If an Iphone doubles or halves in price you would expect demand to react accordingly. Oil has quite inelastic supply and demand. The decade long lead time from greenfield find to bowser means that oil supply, and demand, seems impervious to short term price fluctuations. If you look over the oil suppliers over the last two decades you will see a relatively smooth non reactive output rate - apparently completely uncorrelated to the movement of oil from near $10 to $150 a barrel.
Back in the 70s the OPEC cartel had an oligopolistic control over supplies and could influence price accordingly. Their share is some amount below 40% today. We have seen prices fluctuate from $15-$150 over the last decade - is this the product of some unforeseen demand or unexpected shortfall in supply? Or is simply a bubble waiting to burst? Like the stockmarket, the price of any commodity today should reflect all current conditions and any future expected conditions. So what were people thinking a year ago when they were happy to sell oil at $70? Either they were unaware of future supply/demand numbers or since then speculation has taken over. Using Occam's razor (the simplest solution is usually the correct one) I would suggest it is simply speculation!
Back in the 70s the OPEC cartel had an oligopolistic control over supplies and could influence price accordingly. Their share is some amount below 40% today. We have seen prices fluctuate from $15-$150 over the last decade - is this the product of some unforeseen demand or unexpected shortfall in supply? Or is simply a bubble waiting to burst? Like the stockmarket, the price of any commodity today should reflect all current conditions and any future expected conditions. So what were people thinking a year ago when they were happy to sell oil at $70? Either they were unaware of future supply/demand numbers or since then speculation has taken over. Using Occam's razor (the simplest solution is usually the correct one) I would suggest it is simply speculation!
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This will tell you a little bit more:
YouTube - Countdown Special Report: McCain's Tie's To High Gas Prices
YouTube - Countdown Special Report: McCain's Tie's To High Gas Prices
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404
...first half of 2009... that's what I was after..... thanks....
Fully appreciate that what you write is opinion and would like to think I am mature enough to understand. Whilst I hope you are correct, I don't share your views. However, you raise evidence to support your opinion, which in my book makes your opinions far more interesting than many, alternatively most.
Would I be right in assuming that to drop back to $80 within 12 months, we would firstly see the more "flakey" speculators and their funds in deep trouble as their positions unwind. This would frighten other speculators who would exit the market, allowing oil to drop, somewhat rapidly, to the levels you indicate. Equally, this "panic" may cross-over into other commodity markets.
What I am after is a strategy to have in my back pocket to exploit a lower Oil Price. Apart from buying CX shares
or going short on oil; what would you recommend?
Fully appreciate that what you write is opinion and would like to think I am mature enough to understand. Whilst I hope you are correct, I don't share your views. However, you raise evidence to support your opinion, which in my book makes your opinions far more interesting than many, alternatively most.
Would I be right in assuming that to drop back to $80 within 12 months, we would firstly see the more "flakey" speculators and their funds in deep trouble as their positions unwind. This would frighten other speculators who would exit the market, allowing oil to drop, somewhat rapidly, to the levels you indicate. Equally, this "panic" may cross-over into other commodity markets.
What I am after is a strategy to have in my back pocket to exploit a lower Oil Price. Apart from buying CX shares
or going short on oil; what would you recommend?
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Common knowledge
If someone can give me an economic reason why oil should be twice what it was a year ago or 10 times what it was a decade ago I would love to hear it. Has demand doubled in the last year? Has demand gone up 10 fold in the last decade.
For openers: Just take notice of all the plastic bottles. Have people become more thirsty? I don't know, but everywhere I look I see bottled water. Did you see this many people walk around with bottled water 30 years ago? It takes oil to make plastic!
Population bomb: Look at HKG, 15,000 people per square mile. . . . China, 1.3 billion people; India 1 billion people . . . and growing.
Energy: More power plants. Everybody wants a washing machine, a toaster, a flat screen TV, air conditioning . . .
Transport: Everyday 1000 new cars are being registered in Beijing. Every day: more airplanes, more cars, more trucks . . .
Until alternative energy sources are commercialized: Exactly how and why would the demand and cost of oil significantly decrease....? Have you stopped driving your car yet?
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If it stays up at current levels all other airlines that hedged at this level are no better off than those that didn't hedge. If it falls, those that hedged get burned. If it climbs those that hedged win.
Oil price > option? Exercise it, hedge successful - but not as cheap as on the futures market.
Oil price < option. Throw away option, waste option premium but revel in lower oil prices (and the fact that you have already raised ticket prices by between 5 and 15%...)
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"To those who say oil will drop back in price; if you were an oil producing nation and you had a finite quantity of oil under your country, now that you know the world will pay USD147 a barrel for it, why would you ever sell if for less? But they are never going to come out and say that..are they?.. "
Because eventually people get sick of paying you 147.00 USD per barrel and decide to come up with alternative fuels, reducing their dependency on your limited oil and tumbling the price of your limited resource. They come up with a "green" excuse to tax the ****t out of your "carbon un-friendly" fuel, and then you end up with lots of useless black liquid.
It is not easy to grow soy beans in the desert.
Because eventually people get sick of paying you 147.00 USD per barrel and decide to come up with alternative fuels, reducing their dependency on your limited oil and tumbling the price of your limited resource. They come up with a "green" excuse to tax the ****t out of your "carbon un-friendly" fuel, and then you end up with lots of useless black liquid.
It is not easy to grow soy beans in the desert.
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Bedtime reading and viewing!
Rather than listen to each of us spruik about complex matters we know so little about, try getting your head around some of the main issues.
One book which is very relevant to all of us - the future of cars, and transport in general - does a great analysis of the oil industry:
ZOOM by two correspondents for The Economist (2007)
Iain Carson & Vijay V. Vaitheeswaran
And that led me to a great talk by a US guru, Amory Lovins, who founded the Rocky Mountains Institute. He gives a brief intro to a book he has written called "Winning the Oil Endgame", which is available as a free download(I haven't read that yet). See the 20 min talk on the TED: Ideas worth spreading website:
Amory Lovins on winning the oil endgame | Video on TED.com
Fill in a little bit of time on that next long-haul!
And interestingly, the economic, political, and environmental arguments were all made more than a year ago when fuel was well under $100!
Karrupted
One book which is very relevant to all of us - the future of cars, and transport in general - does a great analysis of the oil industry:
ZOOM by two correspondents for The Economist (2007)
Iain Carson & Vijay V. Vaitheeswaran
And that led me to a great talk by a US guru, Amory Lovins, who founded the Rocky Mountains Institute. He gives a brief intro to a book he has written called "Winning the Oil Endgame", which is available as a free download(I haven't read that yet). See the 20 min talk on the TED: Ideas worth spreading website:
Amory Lovins on winning the oil endgame | Video on TED.com
Fill in a little bit of time on that next long-haul!
And interestingly, the economic, political, and environmental arguments were all made more than a year ago when fuel was well under $100!Karrupted
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NC
http://www.telegraph.co.uk/money/main.jhtml?xml=/money/2008/07/23/bcnoil123.xml
The most salient paragraph perhaps:
"High prices and slower economic growth have driven oil demand in the US lower", he said, "With oil prices above $80 for nearly a year and income growth weakening, demand elasticity has begun to show signs of life."
So inelastic supply combined with inelastic demand drives prices higher in response to small changes in demand. CX is a prime example of inelastic demand, the price of kerosene more than doubles in 12 months and CX's demand response to this price rise (for whatever reason) is to increase capacity, and presumably kerosene consumption, by over 20%.
Inelastic supply of kerosene in Asia is especially relevant due to refinery capacity shortages in the region.
No mention in the article of speculation, which may lead to market volatility and some price overshooting, but not the current price level.
http://www.telegraph.co.uk/money/main.jhtml?xml=/money/2008/07/23/bcnoil123.xml
The most salient paragraph perhaps:
"High prices and slower economic growth have driven oil demand in the US lower", he said, "With oil prices above $80 for nearly a year and income growth weakening, demand elasticity has begun to show signs of life."
So inelastic supply combined with inelastic demand drives prices higher in response to small changes in demand. CX is a prime example of inelastic demand, the price of kerosene more than doubles in 12 months and CX's demand response to this price rise (for whatever reason) is to increase capacity, and presumably kerosene consumption, by over 20%.
Inelastic supply of kerosene in Asia is especially relevant due to refinery capacity shortages in the region.
No mention in the article of speculation, which may lead to market volatility and some price overshooting, but not the current price level.
