Amy
Topic Author
Posts: 1109
Joined: Thu Feb 10, 2005 9:48 am

Oil Prices

Sun Mar 20, 2005 12:15 am

There are a lot of people blaming oil prices for the current crisis in the US Civil Aviation industry.

Being a self-confessed ignorant, I would like to find out how these prices have occurred. Is it due to the conflicts in the middle east, or more techincal economic matters?

Thanks.
A340-300 - slow, but awesome!
 
Boeing7E7
Posts: 5512
Joined: Sat Jul 31, 2004 9:35 pm

RE: Oil Prices

Sun Mar 20, 2005 1:31 am

Lack of US refining capacity.

It creates a false supply shortage therefore pushing up the commodity price.
 
co7772wuh
Posts: 381
Joined: Sun Feb 06, 2005 7:13 am

RE: Oil Prices

Sun Mar 20, 2005 4:51 am

The high oil prices are from extremely high demand . Caused from the extraordinary growth from developing countries, like India and China !

Especially China , which has a population of approx 1.3 billion and a GDP around 10% or higher at times !

China , just a few years back was like the 5th or 6th importer of oil in the world . Now , they are 2nd ! Just behind the US !

They're building everywhere !

Quoting Boeing7E7 (Reply 1):
Lack of US refining capacity.

It creates a false supply shortage therefore pushing up the commodity price.

The US hasn't built a refinery in about 20 or 30 years ! So that doesn't help either !

But we will get oil from Anwar in about 10 years !  bigthumbsup 
 
futureatp
Posts: 190
Joined: Sun Feb 27, 2000 3:07 pm

RE: Oil Prices

Sun Mar 20, 2005 5:08 am

As one who is a common investor in commodities, I think I can shed some light and create some confusion!

China and India (Mainly China) have rapidly expanding economies, and have seen a explosive growth for crude oil demand. As a whole, the world is producing oil about as fast is it can(or wants to). We are right now consuming very close to that rate.

The oil market is real nervous right now, any news of any supply shortage, the buyers are all bidding up the price ensuring that they will have oil. There is some speculation about the weakening US dollar being a culprit. But I dispute that since oil is traded in only the US dollar in the world market.

I am not an OPEC fan. But current high prices run a lot deeper than OPEC. In the 90s, oil got down to $10 a barrel. Because of that, suppliers have been reluctant to do things that would increase production. Shell, BP, and Exxon(the big three in the oil industry) are actively looking for and finding more oil, but are not bringing it to the market as they fear another price fallout.

Refining capacity in the US has been blamed for high gasoline prices before. And there is a lack of it thanks to "interesting" clean air laws. However gasoline inventories are at a 6 year high right now in the United States and we just beat the record for average price per gallon in the US.

The oil industry discovered last year that the oil market can sustain $40 a barrel. The industry I think is doing damn little to bring down prices. But the industry also knows that $55-$60+ oil can(will) cause a global economic recession. Then watch what happens to oil prices!

The great positive about this. It finally forces the American public to look for other energy sources and be more efficient. The US consumes more than 40% of the crude produced in the world. That number needs to come down. The only way you are going to get Americans to park our SUVs and look for more efficient ways of transportation is to make SUVs to expensive to drive. SUV sales have fallen greatly in the last 2 months in the US.

That kind of market shift causes automakers to adjust. General Motors and Toyota are working together on fuel cell technology for example. Capitalism pure and simple.

Back to aviation. I don't see airliners running off of anything else than Jet fuel in the next 40 years. In fact there has been a shift to put diesel engines that run off of JET-A in general aviation aircraft.

I think the oil market is doing some weird stuff. I am currently not invested in the oil market right now. I also have some "conspiracy theories" that I will keep to myself. But I believe we are one global recession or political investigation away from very cheap oil.

John

[Edited 2005-03-19 21:10:56]
 
co7772wuh
Posts: 381
Joined: Sun Feb 06, 2005 7:13 am

RE: Oil Prices

Sun Mar 20, 2005 6:58 am

Quoting FutureATP (Reply 3):
and we just beat the record for average price per gallon in the US.

Very impressive . However, correct me if I am wrong . But didn't we have higher gas prices in the early 80's ?

Ajusted for inflation . Close to $3.00 a gallon .

Thanks for the info .
 
iowaman
Posts: 3874
Joined: Thu May 20, 2004 2:29 am

RE: Oil Prices

Sun Mar 20, 2005 7:22 am

NW is having to pay an extra $50 million a year for fuel ever $1 fuel goes up I believe. That really hurts.
 
futureatp
Posts: 190
Joined: Sun Feb 27, 2000 3:07 pm

RE: Oil Prices

Sun Mar 20, 2005 7:28 am

Co772wuh

Correct. I believe that adjusted for inflation, the record price per gallon in the States is just over $2.80. Now I am not sure if that is for Unleaded fuel or the cheaper leaded as it was still availible in the United States until around 1989 I think.

But this leads me to one other thing. I am going to do some research because people in European contries pay a lot more than we do in the states for motor fuel. I am curious what foriegn air carriers pay for Jet fuel.

John
 
co7772wuh
Posts: 381
Joined: Sun Feb 06, 2005 7:13 am

RE: Oil Prices

Sun Mar 20, 2005 8:05 am

Quoting FutureATP (Reply 6):
Now I am not sure if that is for Unleaded fuel or the cheaper leaded as it was still availible in the United States until around 1989 I think.

Yes , $2.80 is close to what I read . However , if I recall correctly . It was in the very early 80's , 80 , 81 , when gas hit there all time highs .
 
AADC10
Posts: 1509
Joined: Sat Nov 13, 2004 7:40 am

RE: Oil Prices

Sun Mar 20, 2005 10:52 am

Quoting Boeing7E7 (Reply 1):
Lack of US refining capacity.

It creates a false supply shortage therefore pushing up the commodity price.

Refining capacity and gasoline consumption do not have a direct effect on the kerosene based jet fuel because they are slightly different products and are marketed separately. Jet fuel is a lighter hydrocarbon than gasoline.

Jet fuel derivatives (options and speculative contracts) and futures are not traded in the U.S., so fuel hedges are usually based on crude oil or heating oil which closely track the price of jet fuel. As most people in the U.S. have noticed, gasoline tracks oil, but loosely, due to seasonal and other factors.

Fuel prices are generally cyclical, in that they go up and down, not increasing at a long term rate much higher than inflation. Eventually they will revert to the mean and prices will drop. Continental gambled on that happening this year and they were burned. Bankrupt UAL paid a heavy price to hedge any fuel because of their non-existent credit but have been rewarded so far.

Fuel hedging is almost like a side bet, since the hedge is actually in crude rather than refined product.
 
Boeing7E7
Posts: 5512
Joined: Sat Jul 31, 2004 9:35 pm

RE: Oil Prices

Mon Mar 21, 2005 12:05 am

Quoting AADC10 (Reply 8):
Refining capacity and gasoline consumption do not have a direct effect on the kerosene based jet fuel because they are slightly different products and are marketed separately. Jet fuel is a lighter hydrocarbon than gasoline.

It's still a refining capacity issue.
 
Alessandro
Posts: 4962
Joined: Wed Sep 12, 2001 3:13 am

RE: Oil Prices

Mon Mar 21, 2005 1:32 am

Weather has a impact as well, cold winter on the Northern hemisphere is bad
for the oil price.
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