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.

Oil Price to Drop to $80?

Tom Petrie from Merill Lynch:

Decreased global demand will push the price of oil to about $80 a barrel in the coming months, Merrill Lynch Vice Chairman Tom Petrie said on CNBC.

“I think it’s pretty clear demand elasticities have been triggered in a way that will take prices lwer,” Petrie said. “I do think $80 to $90 is probably where the floor is.”

Oil Price Predicted To Drop Into the $90’s

A bearish prediction on oil, dropping into the $90 range, with a good range of arguments. Basically, the same recessionary factors that are hurting Vegas are helping to drive oil prices down.  Good news for air travel.

Thanks in no small degree to a drop in global demand, oil prices, after breaching $147 per barrel, have tumbled more than 23 per cent to below $113. Barring a big hurricane in the Gulf of Mexico or a disruptive geopolitical event, oil prices appear to have peaked.

World oil consumption is now growing at a significantly lower pace than had been imagined a year ago.

In our judgment, the IEA’s forecasts for emerging markets will turn out to have been far too optimistic by year’s end and OPEC countries will again complain about the inability of oil importers to guarantee sufficient demand growth to warrant investments in expanded production capacity.

…

Complacent assumptions that lower prices will bring renewed demand growth ignore the reality of the demand response to extreme price shocks. The shocks stimulate the world to go beyond temporary reductions in discretionary consumption, and make large irreversible investments in energy saving technologies, permanently changing the structure and efficiency of transportation, industrial, commercial, and residential sector demand.

The old adage that “nothing cures high prices like high prices,” is as true today as in the 1970s. Those cures don’t only involve the supply side; the response from demand is as critical. We expect prices to stabilize at $90-100 per barrel but to still stimulate structural demand adjustments – we don’t foresee world demand growth exceeding 1mb/d per year for some time.

How ‘Bout That Sub $115 Oil?

Funny how, given all of the hand-wringing and bewailing articles about the cost of flying to Vegas that hit when oil jumped above $120 on its way to $147, we’re not hearing much about how oil has fallen 25% from its July peak. May it keep falling…

There’s Lots of Oil, Still

The Economist writes:

“WE’RE not running out of hydrocarbons,” insists Tony Hayward, the boss of BP, one of the world’s biggest listed oil firms. To back up this view, he cites various comforting figures from the latest edition of the firm’s “Statistical Review of World Energy”, released on Wednesday June 11th. Enough oil has already been discovered around the world, Mr Hayward says, to maintain consumption at current levels for another 42 years. As he recently put it, humanity has guzzled through 1 trillion barrels, but has its next trillion already lined up, and could probably unearth a third trillion if it really applied itself.