AMR Stock dips more than 20%

[WingNaPrayer]

What gives?

AMR
$ 9.33
-2.64 -22.06%

Last Sale: $ 9.33 Net Change: - 2.64 - 22.06%

 

[jimntx]

I'm guessing it's because oil prices went up with the news of possible OPEC production cutback. However, oil still closed below $70/bbl. So, who knows? Profit taking?

 

[LGA Fleet Service]

CAL was down $2.12, 11.46%
DAL was down $1.13,11.38 %
UAUA was down $2.14,14.61%
LCC was down $1.35,15.90%

Every airline took a beating today, OPEC making production cut noises will have that effect.Shame the arabs can't be content with $65 bbl oil...

 

[jimntx]

You can't totally blame the OPEC nations. Thanks to the fiscal policies of the U.S. government and its citizens at all levels of society--i.e., spend money you don't have and 'plan' to pay it back later--the dollar is worth nada these days (compared to its former value). The Federal government deficit is now approaching 10 trillion dollars. Think about that and the fact that a trillion is a 1000 billion. There are 300 million U.S. citizens. We each owe $33,333.33 of that debt. Frankly, I'm tapped out right now.

Back in the 70's Nixon strong-armed OPEC into pricing all oil sales in U.S. dollars--at the time we were by far the major world consumer of petroleum products. As the value of the dollar goes down, the price of oil has to go up to maintain the same purchasing power from the sale of 1 bbl.

 

[Hopeful]

You can't totally blame the OPEC nations. Thanks to the fiscal policies of the U.S. government and its citizens at all levels of society--i.e., spend money you don't have and 'plan' to pay it back later--the dollar is worth nada these days (compared to its former value). The Federal government deficit is now approaching 10 trillion dollars. Think about that and the fact that a trillion is a 1000 billion. There are 300 million U.S. citizens. We each owe $33,333.33 of that debt. Frankly, I'm tapped out right now.

Back in the 70's Nixon strong-armed OPEC into pricing all oil sales in U.S. dollars--at the time we were by far the major world consumer of petroleum products. As the value of the dollar goes down, the price of oil has to go up to maintain the same purchasing power from the sale of 1 bbl.

It's funny how when the price of oil skyrocketed to $140/bbl...many people blamed the moron Bush for taking care of his oil buddies...but now that's its plummeting,, they dont blame the moron anymore, just the market and economic demand.

 

[jimntx]

I never blamed Bush for the rise in oil prices other than the fact that none of the cost of the Iraq war was ever included in our Federal deficits because Congress and Bush "paid" for it with continuing resolutions that do not count as part of the budget. So, the spend now worry about how to pay for it later Presidency of a supposed Republican has added to the devaluation of the dollar.

Woodrow Wilson involved the U.S. in WWI to "make the world safe for democracy." Bush started the Iraq War to make Iraq safe for Halliburton. For that, I blame him.

 

[Hopeful]

I never blamed Bush for the rise in oil prices other than the fact that none of the cost of the Iraq war was ever included in our Federal deficits because Congress and Bush "paid" for it with continuing resolutions that do not count as part of the budget. So, the spend now worry about how to pay for it later Presidency of a supposed Republican has added to the devaluation of the dollar.

Woodrow Wilson involved the U.S. in WWI to "make the world safe for democracy." Bush started the Iraq War to make Iraq safe for Halliburton. For that, I blame him.

I wasn't referring to you Jim....actually I was referring to co-workers who blamed him for the high price of oil every time they filled up their SUV's.. But now they are just saying the price drop is because of the economy..

 

[jimntx]

Now things are really starting to not make financial sense. OPEC announced a 1.5 million bbl/day cut in production and crude prices dropped another 5%! Right now NYMEX is below $65/bbl.

 

[FWAAA]

Now things are really starting to not make financial sense. OPEC announced a 1.5 million bbl/day cut in production and crude prices dropped another 5%! Right now NYMEX is below $65/bbl.

I'm thinking oil could easily hit $20/bbl. After the late 1997 Asian financial meltdown, oil touched $10-$12/bbl during 1998-99. For those two years, AA paid an average of $0.55 per gallon for jet fuel. While it might not stay cheap for long, falling to $20/bbl is not out of the question. This slowdown might be worldwide, not just limited to one region. Might take much, much larger capacity reduction announcements to keep the price up.

 

[The Goose]

Now things are really starting to not make financial sense. OPEC announced a 1.5 million bbl/day cut in production and crude prices dropped another 5%! Right now NYMEX is below $65/bbl.

There was quite a bit of stuff happen all at once a couple of months ago. It was rather difficult to digest it all and make any sense.

Here in TUL, there is (perhaps was - BK) a company called SemGroup. As so many news item do (especially when there's some truth to them), this one disappeared shortly after I saw it.

It seems as though this outfit, with their trading tactics, was responsible for a great deal of the oil run-up, or at least, that's what was said in the now-disappeared article. That could make some sense as one or two players with deep enough pockets can control much of the futures markets regardless of the commodity at issue. In this case, it was oil and finished products.

What I can't figure is with the massive "injections" of cash into the system and the inflation it should have caused, gold is "down" (takes less $$ to buy the oz.) - conversely, the dollar is worth more.

Whisket - Tango - Foxtrot? - Where did the money go? Close to 1/4 trillion $$ thrown into the system should have caused something besides a strengthening of the currency. That's 500 Billion $$ short of the full amount authorized!

Next, we'll hear that dogs and cats are doing it in the street - with each other.

 

[The Goose]

I'm thinking oil could easily hit $20/bbl. After the late 1997 Asian financial meltdown, oil touched $10-$12/bbl during 1998-99. For those two years, AA paid an average of $0.55 per gallon for jet fuel. While it might not stay cheap for long, falling to $20/bbl is not out of the question. This slowdown might be worldwide, not just limited to one region. Might take much, much larger capacity reduction announcements to keep the price up.

The production cuts from OPEC are rather comical - they've become accustomed to a given level of income and are scrambling. I read two or so weeks ago that the il decline is beginning to affect building projects like the ones in Dubai.

Next, we'll be hearing about some poor, poor emir being forced to ride used camels instead of new ones, due to economic conditions.

Cry me a river.

 

[Boomer]

Given the cash surpluses of many overseas net oil importers, do not expect that oil prices will remain below +$100 bbl for long.

T. Boone Pickens was on Imus last week, he predicted by this time next year oil would be +$100bbl. Given his committment to alternatives despite his oil background, I'll trust him over AMR management like Arpey given his refusal to fund hedge positions over his tenure and his opposition to hedging fuel during prior positions.

Use the cash, fund the hedges.

 

[FWAAA]

. . . I'll trust him over AMR management like Arpey given his refusal to fund hedge positions over his tenure and his opposition to hedging fuel during prior positions.

Who feeds you inaccurate nonsense like the above? The TWU? Or do you just make it up all on your own?

From the 2004 AMR 10-K:

The impact of fuel price changes on the Company and its competitors depends on various factors, including hedging strategies. The Company has a fuel hedging program in which it enters into jet fuel, heating oil and crude oil swap and option contracts to dampen the impact of the volatility of jet fuel prices. During 2003, 2002 and 2001, the Company’s fuel hedging program reduced the Company’s fuel expense by approximately $149 million, $4 million and $29 million, respectively. As of December 31, 2003, the Company had hedged, with option contracts, approximately 21 percent of its estimated first quarter 2004 fuel requirements, 16 percent of its second quarter 2004 estimated fuel requirements and six percent of its estimated fuel requirements for the remainder of 2004. The Company’s credit rating, as discussed in Liquidity and Capital Resources under Item 7, has limited its ability to enter into certain types of fuel hedge contracts. A further deterioration of its credit rating or liquidity position may negatively affect the Company’s ability to hedge fuel in the future. See the Risk Factors under Item 7 for information regarding fuel.

From the 2005 AMR 10-K:

The impact of fuel price changes on the Company and its competitors depends on various factors, including hedging strategies. The Company has a fuel hedging program in which it enters into jet fuel, heating oil and crude oil hedging contracts to dampen the impact of the volatility of jet fuel prices. During 2004, 2003 and 2002, the Company’s fuel hedging program reduced the Company’s fuel expense by approximately $99 million, $149 million and $4 million, respectively. As of December 31, 2004, the Company had hedged, with option contracts, approximately 15 percent of its estimated first quarter 2005 fuel requirements and minimal amounts of its estimated fuel requirements thereafter. A deterioration of the Company’s liquidity position could negatively affect the Company’s ability to hedge fuel in the future. See the Risk Factors under Item 7 for additional information regarding fuel.

From the 2006 AMR 10-K:

The impact of fuel price changes on the Company and its competitors depends on various factors, including hedging strategies. The Company has a fuel hedging program in which it enters into jet fuel, heating oil and crude oil hedging contracts to dampen the impact of the volatility of jet fuel prices. During 2005, 2004 and 2003, the Company’s fuel hedging program reduced the Company’s fuel expense by approximately $64 million, $99 million and $149 million, respectively. As of December 31, 2005, the Company had hedged, with option contracts, including collars, approximately 17 percent of its estimated 2006 fuel requirements and insignificant amounts of its estimated fuel requirements thereafter. The consumption hedged for 2006 is capped at an average price of approximately $60 per barrel of crude oil. A deterioration of the Company’s financial position could negatively affect the Company’s ability to hedge fuel in the future. See the Risk Factors under Item 1A for additional information regarding fuel.
Additional information regarding the Company’s fuel program is also included in Item 7(A) – Quantitative and Qualitative Disclosures about Market Risk and in Note 7 to the consolidated financial statements.

Similar paragraphs are included in each year's 10-K. Additionally, information about fuel hedging positions and gains (or losses) have been included in each quarterly 10-Q plus in each quarterly earnings press release.

Do you possess any evidence at all for your outlandish (and false) claims that Arpey refused to fund hedges or that he has some opposition to hedging? Differences of opinion are one thing - but your post above is clearly, and demonstrably, false.

 

[Bob Owens]

Do you possess any evidence at all for your outlandish (and false) claims that Arpey refused to fund hedges or that he has some opposition to hedging? Differences of opinion are one thing - but your post above is clearly, and demonstrably, false.

I seem to recall Arpey telling us he sold off a lot of their hedges at one time. I think we were told they sold them to SWA.

So if oil is hedged and he tells us that every dollar that oil goes up costs AMR X more dollars a day isnt he misleading us if much of their oil is hedged?

 

[BoeingBoy]

So if oil is hedged and he tells us that every dollar that oil goes up costs AMR X more dollars a day isnt he misleading us if much of their oil is hedged?

Not necessarily, for a several reasons:

- no airline that I know of (including WN) hedges 100% of their future fuel needs. Therefore, they're paying market price for some percentage of their fuel - if the price goes up so does fuel cost, and if price comes down so does fuel cost. I don't think AA has hedged as much as 50% at any time (WN goes as high as 90%) - even if the hedges are successful, the lower the percentage hedged the more fuel you're buying at market price.

- airlines generally don't hedge fuel per se since there's not a big enough marketplace for doing that. They generally use diesel, fuel oil, or heating oil whose price changes don't exactly correspond to changes in jet fuel price. That results in fuel costing more or less than the reported hedge price.

- hedges aren't "one size fits all" instruments. For example, WN may have 50% of their needs hedged at the assumed equivalent of $60/bbl crude while AA may have 50% hedged at an assumed equivalent of $90/bbl crude. If crude is selling for $80/bbl, WN gets 50% of their fuel at the crude equivalent price of $60 and pays market prices for the other 50%. AA pays market prices for all their fuel and loses money on the hedge to boot. Part of this difference in hedged price is how far out fuel is hedged. WN, with their string of profitability and good credit, hedges several years into the future (currently have some hedge positions for 2013 I think). The legacies, because of BK or losses, didn't have the cash or credit 4-5 years ago to hedge for 2009 - they're hedging maybe 1-1.5 years out at most. Consequently, their hedged prices are higher - they don't get the same benefit as WN when prices are high - and the recent drop in prices makes many of their hedge positions ineffective - they lose money on them instead of making money to offset fuel cost.

Jim