Oil dips below $34 a barrel, are airlines out of strife?

[NickN]

Oil has dipped under $34 a barrel which bodes well for us motorists, but is this the saving grace and reprieve the airline industry needed to stabilize itself after a horror 12 months which saw oil hit $147 a barrel less than 6 months ago. One would assume alot of airline execs are breathing a little easier at the moment. The good news is, this latest drop came AFTER the OPEC meeting in which they agreed to a 2.2 million barrel per day output reduction.

Is this the type of environment where airlines secure their future fuel supplies at cheap prices? How do they manage their fuel hedging schemes?

Either way it can't be a bad thing.

[Tony P]

Yeah but no one can afford to travel, business is cutting back on travel. Stay tuned to what will happen next year!

[D Chan]

One would assume alot of airline execs are breathing a little easier at the moment.

It's basically one crisis to another. They can breath a little easier knowing that the fuel problem is 'gone'. However the drop in premium business travel and onward booking rates means demand for air travel is going down. Yield is likely to drop significantly.

As to how airlines manage their fuel hedging schemes - have a look here: (under 'Losses on fuel hedging contracts')
http://downloads.cathaypacific.com/cx/investor/20081105_CXTradingStatement_en.pdf

[Ash W]

...

Is this the type of environment where airlines secure their future fuel supplies at cheap prices? How do they manage their fuel hedging schemes?

...

Not really. The problem with fuel is the price is not predicatble at the moment, so which supplier will be willing to enter into long term hedging schemes in this enviromen? The answer is probably none. So yes whilst the price is low it will be good for the airlines, but next month it may well have jumped again. No one knows, which is the problem at present.

[Montague S]

I was watching a series of interviews from US 60 minutes a few weeks back with the Saudi oil minister, the cost to get a barrel of oil out of the ground is $2, the Saudis actually need $55 a barrel for the Kingdom to actually survive.

I find the price too low & I will stand by that...this does nothing to get people off oil and into other technology.

[Greg F]

I actually work at a gas & oil plant in Vic (esso), and annoys me that our crude is mostly sent overseas, yet we buy oil from overseas, world trade i suppose.
I will tell you that Safeway/Woolworths/Caltex are the ones making big $$ at our servos, as a lot infact MOST of there fuel if shipped in PRE - made from a company called trafigura, refined overseas. Lower quality and cheaper (for the company, not consumer)! And they sell it to you at the same price as other outlets. Fuel from Mobil, is refined and undergoes strict Quality Control Checking.. All in Australia, by Australians..
Shame that the crude isnt all Australian tho!

ESSO = ExxonMobil / Mobil Oil

[NickN]

I have always wondered why we don't refine our own crude oil and survive as much as possible off our own resources. I wonder if anyone can shed some light on why that happens?

As for the Saudi's saying they need oil at $55 a barrel for the Kingdom to survive, does that include the purchases of private aircraft, Ferrari's, and all the other outrageous personal purchases they make?

The simple fact is, the poorer nations in the OPEC cartel cannot afford to cut production otherwise they really will suffer, so I think OPEC may actually struggle to enforce the current output reduction.

Something else to consider is that in the current global economic climate, making moves to increase the price of oil again will only work against interest rate cuts and households struggling with unemployment and debt.

[Montague S]

our oil is sold on the market because it's worth more than what oil Co's would get for it if it was just for our use.

As for the Saudi's saying they need oil at $55 a barrel for the Kingdom to survive, does that include the purchases of private aircraft, Ferrari's, and all the other outrageous personal purchases they make?

those displays of wealth are usually from executives at companies like Saudi Aramco which is a state owned company...

http://www.cbsnews.com/stories/2008/12/05/60minutes/main4650223.shtml

you can watch the interviews at the link.

the poorer nations in the OPEC cartel cannot afford to cut production otherwise they really will suffer

yes they can...its called supply & demand, if the supply is cut & the demand rises then the price goes up, what the Saudi's get for a barrel of oil is what the Ecuadorian's get too.

they use oil as a weapon, but the slow down was easy to predict, it just happened to coincide with the ending of China's building boom (Olympics) and the ending of the 2008 Olympics.

[Mike W]

I actually work at a gas & oil plant in Vic (esso), and annoys me that our crude is mostly sent overseas, yet we buy oil from overseas, world trade i suppose.
I will tell you that Safeway/Woolworths/Caltex are the ones making big $$ at our servos, as a lot infact MOST of there fuel if shipped in PRE - made from a company called trafigura, refined overseas. Lower quality and cheaper (for the company, not consumer)! And they sell it to you at the same price as other outlets. Fuel from Mobil, is refined and undergoes strict Quality Control Checking.. All in Australia, by Australians..
Shame that the crude isnt all Australian tho!

ESSO = ExxonMobil / Mobil Oil

Another reason to stay away from Caltex (Woolworths) as well as Shell (Coles, although I don't know about their petrol quality) on top of these two companies trying to monopolise evrything thing retail.

[Greg F]

Another reason to stay away from Caltex (Woolworths) as well as Shell (Coles, although I don't know about their petrol quality) on top of these two companies trying to monopolise evrything thing retail.

Yeah Very true! After the stories I have heard, not just from work but friends of the family with clogged injectors and water in the fuel! I never buy ULP from Caltex/Woolworths..

Not sure about Coles/Shell I will find out when I get back to work..

Not that I think Mobil are 'great'! they all are ripping us off! but at least Mobil Refine in Australia and employ the local people to do it! and its the same price as Woolies fuel!

[Nigel C]

Greg, I presume you're from Melbourne?

I never buy ULP from Caltex/Woolworths..

Which I think is funny, given that Caltex in Victoria buys a lot of its fuel from the Mobil refinery in Melbourne, and the same reciprocal trade occurs for Mobil in Sydney where Caltex owns one of the refineries (Shell owning the other one up here).

When you have time, have a squiz at this: http://www.accc.gov.au/content/item.phtml?itemId=806216&nodeId=cbad57228e7af058cc4f280d2522b4b7&fn=Chapter%2013%20Addressing%20impediments%20to%20 competition%20in%20petrol%20refining,%20importing% 20and%20wholesaling.pdf

Cheers

[Greg F]

Yeah well before the Caltex/Woolworths merger/agreement Woolies used the cheap el crapo stuff.
They still do but its hit 'n miss as caltex also have ways of sourcing fuel.

Well United buy the Trafigura crap,and I see loads of Toll trucks there too which normally go to Woolies outlets.

P.S Trafigura is also right near my work, but at the moment its Nameless, apparently its been sold???????

[Ash W]

Another reason to stay away from Caltex (Woolworths) as well as Shell (Coles, although I don't know about their petrol quality) on top of these two companies trying to monopolise evrything thing retail.

Half of what he was saying is true half was not. But for example most of Caltex's fuel in Australia is actually refined on-shore, and like ALL retailers in Australia some does indeed come from off-shore suppliers.

I mean to say anyone flying into Sydney airport has a 50/50 chance of flying over their plant at Kurnell and they have one in Brisbane too. Indeed if I am not mistaken Mobil fuel in NSW and QLD is mostly suppled by Caltex.

Bottom line is where the fuel comes from varies from state to state and in some cases week to week too. Also all fuel sold in Aust meets minimum standards. What can and does effect fuel quality is how it is stored.

[Greg F]

Half of what he was saying is true half was not. .

Okay to clarify,
On the Peninsula area Of Victoria United Fuel & Safeway Fuel (the ones that were Safeway+ Petrol before the merger with Caltex) use Trafigura PRE MADE overseas fuel with little / No refinery in Australia!

[Ash W]

Okay to clarify,
On the Peninsula area Of Victoria United Fuel & Safeway Fuel (the ones that were Safeway+ Petrol before the merger with Caltex) use Trafigura PRE MADE overseas fuel with little / No refinery in Australia!

Yeah that is about right and paints an entirly different picture of things.

BTW as you are probably aware Trafigura is a trader and not a refiner of petrol and other fuels.

[D Chan]

Yeah Very true! After the stories I have heard, not just from work but friends of the family with clogged injectors and water in the fuel! I never buy ULP from Caltex/Woolworths..

Not sure about Coles/Shell I will find out when I get back to work..

Not that I think Mobil are 'great'! they all are ripping us off! but at least Mobil Refine in Australia and employ the local people to do it! and its the same price as Woolies fuel!

I can bet you that some of the private service station operators are even worse.

[Montague S]

no longer in the $30's, back up above $44 a barrel.

[NickN]

..... and now back down to $37. Rollercoaster ride at the moment.

[Ash W]

..... and now back down to $37. Rollercoaster ride at the moment.

This is the reason why fuel companies would be loathed to enter into any long term fixed price supply contract at the moment.

[Jason Mac]

Yeah Very true! After the stories I have heard, not just from work but friends of the family with clogged injectors and water in the fuel! I never buy ULP from Caltex/Woolworths..

Gday guys. I have been following this thread with great interest and thought I might add my 2 cents worth. I have been using woolies fuel for years. I use it in my V6 Prado 4WD, Holden Barina, ski boat and in my motorcycle (CBR600). I have never experienced any troubles with any of my engines/injectors in the vehicles/boat listed above. The Prado has 110,000km's on the clock and 90 per cent of those km's are on Woolies fuel. The Barina has 32,000km on the clock and 100 percent of those are on woolies fuel as the car is leased and came with a caltex fuel card.

Most of the time I use woolies premium ulp(believe it is caltex vortex) fuel in the boat but on the odd occasion have used BP ultimate. I do notice a slight increase in performance using the BP over the Vortex.


Cheers

[Ash W]

Gday guys. I have been following this thread with great interest and thought I might add my 2 cents worth. I have been using woolies fuel for years. I use it in my V6 Prado 4WD, Holden Barina, ski boat and in my motorcycle (CBR600). I have never experienced any troubles with any of my engines/injectors in the vehicles/boat listed above. The Prado has 110,000km's on the clock and 90 per cent of those km's are on Woolies fuel. The Barina has 32,000km on the clock and 100 percent of those are on woolies fuel as the car is leased and came with a caltex fuel card.

Most of the time I use woolies premium ulp(believe it is caltex vortex) fuel in the boat but on the odd occasion have used BP ultimate. I do notice a slight increase in performance using the BP over the Vortex.


Cheers

There are two types of Woolies petrol stations. There are the ones which are really Caltex owned and operated, but also have Woolworths branding and those that were originally Woolworths stations and now sell Caltex fuel. There is nothing at all wrong with Caltex fuel, the cheaper and crappier fuel generaly ends up in the no name indepenants or stations where storage facilities isn't up to scratch.

Most of the brand name staions have such a high fuel turn over it doesn't sit long enough to go bad. One where I used to work in Canberra sold about 70,000 a day.