Oil dips below $34 a barrel, are airlines out of strife?

[NickN]

Oil has dipped under $34 a barrel which bodes well for us motorists, but is this the saving grace and reprieve the airline industry needed to stabilize itself after a horror 12 months which saw oil hit $147 a barrel less than 6 months ago. One would assume alot of airline execs are breathing a little easier at the moment. The good news is, this latest drop came AFTER the OPEC meeting in which they agreed to a 2.2 million barrel per day output reduction.

Is this the type of environment where airlines secure their future fuel supplies at cheap prices? How do they manage their fuel hedging schemes?

Either way it can't be a bad thing.

[Tony P]

Yeah but no one can afford to travel, business is cutting back on travel. Stay tuned to what will happen next year!

[D Chan]

Originally Posted by NickN

One would assume alot of airline execs are breathing a little easier at the moment.

It's basically one crisis to another. They can breath a little easier knowing that the fuel problem is 'gone'. However the drop in premium business travel and onward booking rates means demand for air travel is going down. Yield is likely to drop significantly.

As to how airlines manage their fuel hedging schemes - have a look here: (under 'Losses on fuel hedging contracts')
http://downloads.cathaypacific.com/c...atement_en.pdf

[Ash W]

Originally Posted by NickN

...

Is this the type of environment where airlines secure their future fuel supplies at cheap prices? How do they manage their fuel hedging schemes?

...

Not really. The problem with fuel is the price is not predicatble at the moment, so which supplier will be willing to enter into long term hedging schemes in this enviromen? The answer is probably none. So yes whilst the price is low it will be good for the airlines, but next month it may well have jumped again. No one knows, which is the problem at present.

[Montague S]

I was watching a series of interviews from US 60 minutes a few weeks back with the Saudi oil minister, the cost to get a barrel of oil out of the ground is $2, the Saudis actually need $55 a barrel for the Kingdom to actually survive.

I find the price too low & I will stand by that...this does nothing to get people off oil and into other technology.

[Greg F]

I actually work at a gas & oil plant in Vic (esso), and annoys me that our crude is mostly sent overseas, yet we buy oil from overseas, world trade i suppose.
I will tell you that Safeway/Woolworths/Caltex are the ones making big $$ at our servos, as a lot infact MOST of there fuel if shipped in PRE - made from a company called trafigura, refined overseas. Lower quality and cheaper (for the company, not consumer)! And they sell it to you at the same price as other outlets. Fuel from Mobil, is refined and undergoes strict Quality Control Checking.. All in Australia, by Australians..
Shame that the crude isnt all Australian tho!

ESSO = ExxonMobil / Mobil Oil

[NickN]

I have always wondered why we don't refine our own crude oil and survive as much as possible off our own resources. I wonder if anyone can shed some light on why that happens?

As for the Saudi's saying they need oil at $55 a barrel for the Kingdom to survive, does that include the purchases of private aircraft, Ferrari's, and all the other outrageous personal purchases they make?

The simple fact is, the poorer nations in the OPEC cartel cannot afford to cut production otherwise they really will suffer, so I think OPEC may actually struggle to enforce the current output reduction.

Something else to consider is that in the current global economic climate, making moves to increase the price of oil again will only work against interest rate cuts and households struggling with unemployment and debt.

[Montague S]

our oil is sold on the market because it's worth more than what oil Co's would get for it if it was just for our use.

As for the Saudi's saying they need oil at $55 a barrel for the Kingdom to survive, does that include the purchases of private aircraft, Ferrari's, and all the other outrageous personal purchases they make?

those displays of wealth are usually from executives at companies like Saudi Aramco which is a state owned company...

http://www.cbsnews.com/stories/2008/...n4650223.shtml

you can watch the interviews at the link.

the poorer nations in the OPEC cartel cannot afford to cut production otherwise they really will suffer

yes they can...its called supply & demand, if the supply is cut & the demand rises then the price goes up, what the Saudi's get for a barrel of oil is what the Ecuadorian's get too.

they use oil as a weapon, but the slow down was easy to predict, it just happened to coincide with the ending of China's building boom (Olympics) and the ending of the 2008 Olympics.

[Mike W]

Originally Posted by Greg F

I actually work at a gas & oil plant in Vic (esso), and annoys me that our crude is mostly sent overseas, yet we buy oil from overseas, world trade i suppose.
I will tell you that Safeway/Woolworths/Caltex are the ones making big $$ at our servos, as a lot infact MOST of there fuel if shipped in PRE - made from a company called trafigura, refined overseas. Lower quality and cheaper (for the company, not consumer)! And they sell it to you at the same price as other outlets. Fuel from Mobil, is refined and undergoes strict Quality Control Checking.. All in Australia, by Australians..
Shame that the crude isnt all Australian tho!

ESSO = ExxonMobil / Mobil Oil

Another reason to stay away from Caltex (Woolworths) as well as Shell (Coles, although I don't know about their petrol quality) on top of these two companies trying to monopolise evrything thing retail.

[Greg F]

Originally Posted by Mike W

Another reason to stay away from Caltex (Woolworths) as well as Shell (Coles, although I don't know about their petrol quality) on top of these two companies trying to monopolise evrything thing retail.

Yeah Very true! After the stories I have heard, not just from work but friends of the family with clogged injectors and water in the fuel! I never buy ULP from Caltex/Woolworths..

Not sure about Coles/Shell I will find out when I get back to work..

Not that I think Mobil are 'great'! they all are ripping us off! but at least Mobil Refine in Australia and employ the local people to do it! and its the same price as Woolies fuel!