Oil price may reach US$150 a barrel soon

Published: 09 Jun 2008

Crude oil jumped more than $10 a barrel last week to a record high of $138.54

As per the information available, the biggest one-day surge ever in crude prices was fueled by a mix of factors, including a gloomy US job report and interest-rate fears that drove down the dollar, unease in the oil-rich Middle East and a prediction by a major brokerage firm that crude could hit $150 a barrel by July 4.

Morgan Stanley analyst Ole Slorer reportedly said Asian countries are taking "an unprecendented share" of the world's oil. The strong demand from Asia, coupled with stagnant oil supply growth, "appears to be pricing out Atlantic basin consumers while at the same time driving Atlantic inventories to critically low levels," according to Slorer's research note.

Airline shares plunged Friday, cutting short a midweek rally spurred by deep capacity cuts at UAL Corp.'s United Airlines and Continental Airlines. UAL, Continental, US Airways Group and American Airlines parent AMR Corp. were all down more than 7% in late morning trading. Delta Air Lines (DAL) and Northwest Airlines were down more than 6%.

The spike in global crude oil prices on Friday pushed the anticipated fuel bill for US airlines up by more than $4 billion, driving down shares and heightening uncertainty about industry prospects.

"Things just got worse for us today," James May, the top lobbyist for carriers as chief executive of the Air Transport Association, told Reuters.

Airlines are particularly sensitive to price increases with carriers spending more on jet fuel than any other expense.

Domestic airlines are expected to pay more than $61 billion for fuel this year, $20 billion more than the tab for 2007, the ATA estimates. The figure accounts for some of the pending capacity cuts, imposed by the biggest airlines to counter high fuel expense.

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Kilgore said on 12 Jun 08:

Regarding airlines and the rapidly increase in the cost of fuel, there was an interesting wire service news article a couple of days ago.

Eight years ago, 15 percent of the price of an airplane ticket went to pay for jet fuel; now, it is 40 percent, according to the Air Transport Association.

If fuel costs did not increase further, which is not likely, U.S. airlines will spend $61.2 billion this year on jet fuel, which is more than five times what they spent in 2002, when travel fell sharply after the September 2001 terror attacks.

Fuel costs are already up 84 percent this year compared to last year. A Boeing 737 takes about 7,000 gallons and a 747 takes as much as 60,000 gallons.

Airlines are raising fares and adding surcharges and fees as fast as they can to offset the higher costs, but at a certain point, passengers stay home. That is why the carriers are looking for any new savings they can find.

"Our fleet is over 500 airplanes," Beth Harbin, a Southwest spokeswoman, said. "If you can make a difference on one airplane on one flight, and multiply that by 500, in this day and age that is significant."

Although airlines have tried fuel-saving measures for years, they attacked the problem with renewed urgency when oil passed $100 a barrel earlier this year. Now, all airlines are urging employees to suggest ways, large and small, to cut fuel usage.

Some airlines are retiring old an inefficient aircrat. Northwest's Airbus A330 long-range jets use 38 percent less fuel than the DC-10s they replaced, and the Airbus A319 medium-range planes are 27 percent more efficient than DC-9s.

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