Oil below $60

[fltguymk]

With oil below $60 today, should AA hedge more fuel to prepare against the future spike?

 

[FWAAA]

Only if you're confident that $60/bbl is the bottom (or so close that it doesn't matter).

But what if it's not the bottom? What if $12/bbl is the bottom? Or $15/bbl? Or even $20/bbl or $30/bbl?

Wouldn't want to be the genius who locks in $60/bbl fuel for long-term if the price of crude falls to half of that long-term.

Don't think it's possible? Check out historical crude prices since 1946. Or since 1973 (since the price pre-embargo was about the same as 1946). Except for short periods (1979-85 and 2003-08), oil has bounced aroung between $10/bbl and about $30/bbl for that entire time. Think it can't happen again? Predict the price of crude correctly, and you'll be nominated for Southwest-Style Sainthood. Predict incorrectly, and your airline will go bankrupt.

How much have you invested in crude oil (or gasoline) futures at $60/bbl? Not me, since history tends to show much lower prices.

 

[lpbrian]

Only if you're confident that $60/bbl is the bottom (or so close that it doesn't matter).

But what if it's not the bottom? What if $12/bbl is the bottom? Or $15/bbl? Or even $20/bbl or $30/bbl?

Wouldn't want to be the genius who locks in $60/bbl fuel for long-term if the price of crude falls to half of that long-term.

Don't think it's possible? Check out historical crude prices since 1946. Or since 1973 (since the price pre-embargo was about the same as 1946). Except for short periods (1979-85 and 2003-08), oil has bounced aroung between $10/bbl and about $30/bbl for that entire time. Think it can't happen again? Predict the price of crude correctly, and you'll be nominated for Southwest-Style Sainthood. Predict incorrectly, and your airline will go bankrupt.

How much have you invested in crude oil (or gasoline) futures at $60/bbl? Not me, since history tends to show much lower prices.

Wow, you must not be in AA mgmt. They always view the glass as half empty.....

 

[The Goose]

Only if you're confident that $60/bbl is the bottom (or so close that it doesn't matter).

But what if it's not the bottom? What if $12/bbl is the bottom? Or $15/bbl? Or even $20/bbl or $30/bbl?

Wouldn't want to be the genius who locks in $60/bbl fuel for long-term if the price of crude falls to half of that long-term.

Don't think it's possible? Check out historical crude prices since 1946. Or since 1973 (since the price pre-embargo was about the same as 1946). Except for short periods (1979-85 and 2003-08), oil has bounced aroung between $10/bbl and about $30/bbl for that entire time. Think it can't happen again? Predict the price of crude correctly, and you'll be nominated for Southwest-Style Sainthood. Predict incorrectly, and your airline will go bankrupt.

How much have you invested in crude oil (or gasoline) futures at $60/bbl? Not me, since history tends to show much lower prices.

Regardless of the reason, logic tells me there's no way in hell demand for oil has decreased by 50% (basing the figure on price).

It points more to some entity playing "speculator" with the pricing. I read once that Tulsa's Semgroup was responsible for a lot of the speculative pricing run-up but they went belly up - never again did I see that article. If it disappeared like that, there must have been a tad of truth to it.

$40 - $50 per barrel will probably be the bottoming-out point unless some brilliant SOB decides to corner the market again.

 

[A/C FIXER]

Regardless of the reason, logic tells me there's no way in hell demand for oil has decreased by 50% (basing the figure on price).

It points more to some entity playing "speculator" with the pricing. I read once that Tulsa's Semgroup was responsible for a lot of the speculative pricing run-up but they went belly up - never again did I see that article. If it disappeared like that, there must have been a tad of truth to it.

$40 - $50 per barrel will probably be the bottoming-out point unless some brilliant SOB decides to corner the market again.

Goose, I'm with you on this. All this time we've been told that the cost of oil was driven up because of an increase in demand from India and China, what happend, did they all of a sudden stop wantng the vast amounts of crude they needed.
The laws of supply and demand go right out the door when you have someone controlling suppy/OPEC/ and whenever they drop production they artifically create a false demand. Then throw Wall St. into the mess and up go prices.

 

[Bob Owens]

Goose, I'm with you on this. All this time we've been told that the cost of oil was driven up because of an increase in demand from India and China, what happend, did they all of a sudden stop wantng the vast amounts of crude they needed.
The laws of supply and demand go right out the door when you have someone controlling suppy/OPEC/ and whenever they drop production they artifically create a false demand. Then throw Wall St. into the mess and up go prices.

Not that I buy all the BS lines we get from corporate media but when the price doubled demand did soften, then there was the big push towards alternate energy which I hope we still pursue, so suppliers have a motive to keep it low. Just think if we had put the effort into being energy independant by the year 2000 as Jimmy Carter had wanted what a different world we would be living in now.

 

[FrugalFlyerv2.0]

The laws of supply and demand go right out the door when you have someone controlling suppy/OPEC/ and whenever they drop production they artifically create a false demand. Then throw Wall St. into the mess and up go prices.

My gut feeling is that once the recession eases, OPEC may manupulate production/supply in such a way that $75-$100 per barrel will be the standard price - similar to what $20-$30 used to be not too long ago.

 

[American Air Surf]

My gut feeling is that once the recession eases, OPEC may manupulate production/supply in such a way that $75-$100 per barrel will be the standard price - similar to what $20-$30 used to be not too long ago.

You are right..., only if people knew the real truth. It is going to get so bad, people will be blinded by the speed, of the coming crisis. New, report from the U.K.- Great Britian, is in BIG trouble......


http://www.peakoiltaskforce.net/ ....only one of many reports /////, Enjoy the ride....

 

[frontline]

My gut feeling is that once the recession eases, OPEC may manupulate production/supply in such a way that $75-$100 per barrel will be the standard price - similar to what $20-$30 used to be not too long ago.

I agree. Also factor in that south of $60 or so, the oil operations in Alberta (oil shale) start to lose money since it's more expensive to extract. If that production starts to decrease, you can bet those supply effects will be felt in the market (read: our wallets).

 

[BoeingBoy]

Regardless of the reason, logic tells me there's no way in hell demand for oil has decreased by 50% (basing the figure on price).

Goose, I'm with you on this. All this time we've been told that the cost of oil was driven up because of an increase in demand from India and China, what happend, did they all of a sudden stop wantng the vast amounts of crude they needed.

While the drop in demand didn't all occur in India/China, a 6-8% drop in demand occuring in the country that uses about 25% of crude oil means a 1.5-2% drop in world demand all by itself. Then you can add in the drop in demand for the rest of the world. It was enough to change the demand estimates from greater than supply to less than supply, which makes a pretty big difference in futures contract prices.

But the drop in demand doesn't account for the biggest factor - currency exchange rates. Since crude is officially priced in dollars, the 25-30% greater strength in the dollar's value makes for a big change.

Of course, there's speculation also - and that includes the airlines that hedge fuel. But speculators are active when the price is going down as well as when it's going up.

Jim

 

[twaokc]

I hope this is not off subject.

The BAKKEN is the largest domestic oil discovery

GOOGLE it or follow this link. It will blow your mind..............
(http://www.usgs.gov/newsroom/article.asp?ID=1911)

The U.S. Geological Service issued a report in April ('08) that only
scientists and oilmen knew was coming, but man was it big. It was a
revised report (hadn't been updated since '95) on how much oil was in
this area of the western 2/3 of North Dakota ; western South Dakota ; and extreme eastern Montana ....
Check THIS out :

The Bakken is the largest domestic oil discovery since Alaska 's Prudhoe Bay , and has the potential to eliminate all American dependence on foreign oil. The Energy Information Administration (EIA) estimates it at 503 billion barrels. Even if just 10% of the oil is recoverable ... at $107 a barrel, we're looking at a resource base worth more than $5.3 trillion.

'When I first briefed legislators on this, you could practically see their jaws hit the floor. They had no idea.' says Terry Johnson, the
Montana Legislature's financial analyst.

'This sizable find is now the largest producing onshore oil field found in the past 56 years,' reports The Pittsburgh Post Gazette. It's
a formation known as the Williston Basin, but is more commonly referred to as the 'Bakken.' And it stretches from Northern Montana ,
through North Dakota and into Canada. For years, U.S.oil exploration has been considered a dead end. Even the 'Big Oil' companies gave up
searching for major oil wells decades ago. However, a recent technological breakthrough has opened up the Bakken's massive
reserves... and we now have access of up to 500 billion barrels. And because this is light, sweet oil, those billions of barrels will cost A mericans just $16 PER BARREL!

That's enough crude to fully fuel the American economy for 41 years straight.

And if THAT didn't throw you on the floor, then this next one should - because it's from TWO YEARS AGO, people!

U.S.Oil Discovery- Largest Reserve in the World!
Stansberry Report Online - 4/20/2006 Hidden 1,000 feet beneath the
surface of the Rocky Mountains lies the largest untapped oil reserve
in the world and is more than 2 TRILLION barrels. On August 8, 2005
President Bush mandated its extraction.

They reported this stunning news: We have more oil inside our borders,
than all the other proven reserves on earth. Here are the official estimates:

8 times as much oil a s Saudi Arabia
18 times as much oil a s Iraq
21 times as much oil as Kuwait
22 times as much oil as Iran
500 times as much oil as Yemen- and it's all right here in the

Western United States.

HOW can this BE? HOW can we NOT BE extracting this… ! ? Because the
democrats, environmentalists and left wing republicans have blocked
all efforts to help America become independent of foreign oil.

James Bartis, lead researcher with the study says we've got more oil in
this very compact area than the entire Middle East -more than 2
TRILLION barrels.
Untapped.That's more than all the proven oil reserves of crude oil in
the world today, reports The Denver Post.

----
Don't think 'OPEC' will drop its price - even with this find? Think
again! It's all about the competitive marketplace, - it has to.
----

 

[Bob Owens]

I hope this is not off subject.

The BAKKEN is the largest domestic oil discovery



HOW can this BE? HOW can we NOT BE extracting this… ! ? Because the
democrats, environmentalists and left wing republicans have blocked
all efforts to help America become independent of foreign oil.

----

Good news but; (from Wikepedia)

While these numbers would appear to indicate a massive reserve, the percentage of this oil which might be extracted using current technology is another matter. Estimates of the Bakken's technically recoverable oil have ranged from as low as 1% — because the Bakken shale has generally low porosity and low permeability, making the oil difficult to extract — to Leigh Price's estimate of 50% recoverable.[10] Reports issued by both the USGS and the state of North Dakota in April 2008 seem to indicate the lower range of recoverable estimates are more realistic with current technology.

The flurry of drilling activity in the Bakken, coupled with the wide range of estimates of in-place and recoverable oil, led North Dakota senator Byron Dorgan to ask the USGS to conduct a study of the Bakken's potentially recoverable oil. In April 2008 the USGS released this report, which estimated the amount of technically recoverable, undiscovered oil in the Bakken Formation at 3.0 to 4.3 billion barrels, with a mean of 3.65 billion.[11] Later that month, the state of North Dakota's report [12] estimated that of the 167 billion barrels of oil in-place in the North Dakota portion of the Bakken, 2.1 billion barrels were technically recoverable with current technology.[/quote]

So yea there is plenty of oil there but if you have to spend more to get it than you can sell it for then its not really an economic option, its just a strategic assett. According to the same article there is plenty of drilling going on and tax incentives are being offered to promote drilling. So the lack of development has more to do with eceonomics than enviornmentalism.

The problem isnt finding oil, its finding cheap easily extractable oil. The oil sands of Canada also have plenty of oil but recovering it is expensive.

What we need to consider is that with all the many uses of petroleum (we need oil for a lot of things besides fuel*),and the harmful enviornmental effects of burning it, we really should continue to develop alternate energy. Wind, solar, nuclear, geothermal, tidal, and hydro should be our primary means of producing electricity thus freeing up oil for other uses and keeping the air we breath cleaner. To me best way to keep our energy costs low is to develop competitive alternates to oil. If we can use non-fossil fuel methods to economically produce electricity we can then use that electricity to produce hydrogen, which when burned produces water. Then we could use less oil for transportation. The production of cheap hydrogen could even help make recovering hard to recover oil cheaper etc. We dont want to limit our mobility and way of life but at the same time we dont want to pollute and alter our enviornment in potentaily catastrophic ways.

* Petroleum is also the raw material for many chemical products, including pharmaceuticals, solvents, fertilizers, pesticides, and plastics; the 16% not used for energy production is converted into these other materials. from Wikipedia

At one time our primary source of fuel was trees, with modern energy demands if that was still the case there wouldnt be many trees left on earth and the air would be very polluted. Then came coal, coal provided a more compact energy source than wood, however it too was dirty. Then came petroleum,even more compact, much cleaner and easier to use than coal but because we use so much of it it's still dirty. Wood, coal , oil, we have always had these things available to us, oil was used by the ancients for lighting, waterproofing and even roadbuilding. Technology helped us develop those resources and improve our living standards. Wind, solar and gravity have also always been with us and can potentially provide us all the energy we need without the harmful enviornmental effects of burning fossil fuels, we just need to develope the technology to make it cheaper than oil. Burning fossil fuels puts tons of pollutants into the air, its time to move on to sources that can provide us cleaner energy.


Its economically good for the short term to see oil dip below $60 a barrel. We all could use a break, our lifestyles have been built around cheap oil, but what happened this past summer should prove as a warning, if we dont get off our dependance on cheap oil, regardless of its source, we are headed for disaster both ecomically and likely enviornmentally.

 

[tech2101]

Regardless of the reason, logic tells me there's no way in hell demand for oil has decreased by 50% (basing the figure on price).

It points more to some entity playing "speculator" with the pricing. I read once that Tulsa's Semgroup was responsible for a lot of the speculative pricing run-up but they went belly up - never again did I see that article. If it disappeared like that, there must have been a tad of truth to it.

$40 - $50 per barrel will probably be the bottoming-out point unless some brilliant SOB decides to corner the market again.

Demand has not gone down 50%, but the speculators are betting that the demand for petroleum and oil related products will be down for the next several years due to the global recession. Remember, oil is used for more than just transportation fuel. It is also used to make plastics, which is used in almost everything sold in the world today. People across the world are buying less, or will be buying less, due to diminished buying power. I think the bottom of the barrel as far as oil prices is near, but to put an exact dollar figure on it...

I hope that demand continues to decrease and the lower cost of fuel does not lull us into a false sense of cheap gas for the long term. We must reduce our need for imported oil. But, Americans are gluttons. If it is cheap, we will continue to fuel the Hummer and drive by ourselves to work everyday...(no, I don't have a Hummer)

 

[FWAAA]

Its economically good for the short term to see oil dip below $60 a barrel. We all could use a break, our lifestyles have been built around cheap oil, but what happened this past summer should prove as a warning, if we dont get off our dependance on cheap oil, regardless of its source, we are headed for disaster both ecomically and likely enviornmentally.

Agreed. That's why this lifelong conservative Republican has always been in favor of higher national gasoline taxes. From 1973 to the present (or 1980 to the present) we should have been adding an annual increment to our national gasoline taxes to encourage conservation.

The CAFE standards have been proven a worthess attempt at micro-management by Congress. A much better solution would have been to raise the price of gas, which would have altered behaviour. Look at the 8% year over year decline in miles driven this past August. Unprecedented reduction in driving in this country.

Had we slowly adjusted to $4/gal or $5/gal gas over the past 30 years or so, we'd have been in a much better position. And the billions raised by a higher gas tax could have been used to improve highways and improve mass transit throughout the country.

 

[The Goose]

Agreed. That's why this lifelong conservative Republican has always been in favor of higher national gasoline taxes. From 1973 to the present (or 1980 to the present) we should have been adding an annual increment to our national gasoline taxes to encourage conservation.

The CAFE standards have been proven a worthess attempt at micro-management by Congress. A much better solution would have been to raise the price of gas, which would have altered behaviour. Look at the 8% year over year decline in miles driven this past August. Unprecedented reduction in driving in this country.

Had we slowly adjusted to $4/gal or $5/gal gas over the past 30 years or so, we'd have been in a much better position. And the billions raised by a higher gas tax could have been used to improve highways and improve mass transit throughout the country.

I know I'm being extremely idealistic, but ...

We are where we are due to the auto industry and the oil industry, both buying off the Congress for their betterment while the country pays the price.

I really don't believe higher taxes would accomplish a thing - look at the recent run-up of oil prices. Fuel was still purchased regardless. Higher taxes would simply give a corrupt House and Senate more buck$ for their respective slush funds and not do a thing for the problems at hand.

If there is such a thing, we need a benevolent dictator to straighten out this mess (and to park a few guillotines on Wall Street ready to cure problems). While that's a nice thought, one only need remember their history to see that some of the worst dictators on record started this way also - offering a cure-all to the people if only he/she would be put in power.