Oil Continues to Fall = Good for Vegas

Oil continues to fall, to nearly $90 per barrel, even in the face of hurricane-caused refinery damage, Venezuelan threats, and Russian aggression. There’s increasing evidence that the spike over the summer was largely driven by speculation as opposed to general demand. Oil is now where it began the year, and remember that at the beginning of the year, no one was talking about “airlines cutting back service because fuel is too expensive”.

An article in the WSJ talks about the new airline fees being “here to stay” even though oil has retreated. While that may make flying a little less appealing, it’s good for the health of the industry. One analyst comments:

The sharp drop in oil prices over the past few weeks has dramatically changed the financial outlook for airlines. The difference between buying jet fuel when crude oil is $147 a barrel versus $100 a barrel is $15 billion a year — a staggering saving for airlines.

Airline analyst Gary Chase at Lehman Brothers estimates that even with a recession, the U.S. industry can break even with oil prices in a range of $100 to $105 a barrel.

“The outlook for the industry is in dramatically better shape than it was,” he said.

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