Comments on: Jet Fuel Premium Set to Fall http://www.nakedcapitalism.com/2008/07/jet-fuel-premium-set-to-fall.html Mon, 23 Nov 2009 11:36:25 -0500 http://wordpress.org/?v=2.8.4 hourly 1 By: Lune http://www.nakedcapitalism.com/2008/07/jet-fuel-premium-set-to-fall.html#comment-11405 Lune Wed, 16 Jul 2008 00:36:00 +0000 http://www.nakedcapitalism.com/2008/07/jet-fuel-premium-set-to-fall/#comment-11405 Quick question to all you airline experts out there: are airlines really so stupid as to buy their fuel on the spot market? I'd expect that they would have multi-year fuel contracts with refiners, or at least use futures to hedge their prices, so that their fuel prices are predictable and controllable. After all, they're not supposed to be in the oil trading business, they're supposed to spend their management time and effort in the airline transportation business. If that's the case, then why do spot markets affect airlines at the present time? (Except for the fact that they force higher prices for contracts being negotiated for future delivery).<br/><br/>I can't imagine that airlines, which plan their flight schedules months in advance, and their airplane purchasing/leasing decisions years in advance, would then leave everything to the volatile whims of the oil spot market. But then again, no one ever accused airline managers of being smart. Quick question to all you airline experts out there: are airlines really so stupid as to buy their fuel on the spot market? I’d expect that they would have multi-year fuel contracts with refiners, or at least use futures to hedge their prices, so that their fuel prices are predictable and controllable. After all, they’re not supposed to be in the oil trading business, they’re supposed to spend their management time and effort in the airline transportation business. If that’s the case, then why do spot markets affect airlines at the present time? (Except for the fact that they force higher prices for contracts being negotiated for future delivery).

I can’t imagine that airlines, which plan their flight schedules months in advance, and their airplane purchasing/leasing decisions years in advance, would then leave everything to the volatile whims of the oil spot market. But then again, no one ever accused airline managers of being smart.

]]> By: The Energy Standard team http://www.nakedcapitalism.com/2008/07/jet-fuel-premium-set-to-fall.html#comment-11367 The Energy Standard team Tue, 15 Jul 2008 12:19:00 +0000 http://www.nakedcapitalism.com/2008/07/jet-fuel-premium-set-to-fall/#comment-11367 The relief will not be big, as you state.<br/><br/>If it was 90% cut on the jet fuel crack spread which has risen to $20+/brl, then it would have an effect.<br/><br/>However, it if is an 90% cut on the jet fuel premium over other mid-distillates, then I doubt that the relief is going to be significant for airlines.<br/><br/>Granted, in the current situation, esp. for US carries, every little bit helps.<br/><br/>However, unless crude drops to c. $90/brl in 2009 (avg) and jet fuel spread normalizes, then a lot of airlines are going to go bankrupt. A lot.<br/><br/>As for $90/brl crude oil + normal crack spread for jet fuel (c. $5/brl) it's not impossible of course, but most of the risks point towards a higher price rather than a significant drop in price. The relief will not be big, as you state.

If it was 90% cut on the jet fuel crack spread which has risen to $20+/brl, then it would have an effect.

However, it if is an 90% cut on the jet fuel premium over other mid-distillates, then I doubt that the relief is going to be significant for airlines.

Granted, in the current situation, esp. for US carries, every little bit helps.

However, unless crude drops to c. $90/brl in 2009 (avg) and jet fuel spread normalizes, then a lot of airlines are going to go bankrupt. A lot.

As for $90/brl crude oil + normal crack spread for jet fuel (c. $5/brl) it’s not impossible of course, but most of the risks point towards a higher price rather than a significant drop in price.

]]> By: Jojo http://www.nakedcapitalism.com/2008/07/jet-fuel-premium-set-to-fall.html#comment-11359 Jojo Tue, 15 Jul 2008 09:38:00 +0000 http://www.nakedcapitalism.com/2008/07/jet-fuel-premium-set-to-fall/#comment-11359 Strange that you write this tonight.<br/><br/>Earlier today I was looking at this blog entry [http://www.elliott.org/blog/if-you-were-an-airline-youd-be-paying-1-per-gallon-less-for-fuel/]. He points to the Bureau of Transportation Statistics [http://www.bts.gov/programs/airline_information/fuel_cost_and_consumption/html/2008_05_summary.html] which indicates that air carriers paid on average $3.06/gal for fuel in May 2008. Hmmm.... Strange that you write this tonight.

Earlier today I was looking at this blog entry [http://www.elliott.org/blog/if-you-were-an-airline-youd-be-paying-1-per-gallon-less-for-fuel/]. He points to the Bureau of Transportation Statistics [http://www.bts.gov/programs/airline_information/fuel_cost_and_consumption/html/2008_05_summary.html] which indicates that air carriers paid on average $3.06/gal for fuel in May 2008. Hmmm….

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