USA320Pilot
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- May 18, 2003
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5 Airline Buys And 1 Sell Based On Wednesday's Oil Spike
- Thread starter USA320Pilot
- Start date
WorldTraveler
Corn Field
- Dec 5, 2003
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- #2
these two paragraphs from the article are important to understand why the author believes airlines could benefit.
"Over the past year, NYMEX crude oil prices (commonly quoted in the United States) have become disconnected from Brent crude oil prices (commonly quoted in Europe). The reason is that NYMEX quotes prices at the land-locked Cushing terminal, where there has been an ongoing glut of oil (thus depressing prices). However, market petroleum product prices in the U.S. are largely driven by Brent crude, which can be transported by sea. In the past few months, Brent crude has traded as much as $28/barrel higher than NYMEX crude oil, but the spread is now down to single digits. The result is that while NYMEX crude oil prices are rising, petroleum products like jet fuel are becoming cheaper. The New York heating oil contract, which typically trades within a few pennies of Gulf Coast jet fuel, closed the day down more than 1% at $3.1346/gallon.
As the so-called "crack spread" between NYMEX oil prices and jet fuel prices narrows, airlines will reap a substantial windfall. Wednesday's news alone narrowed the crack spread by about 11 cents/gallon. To put that in perspective, Delta and United would save about $400 million each on an annual basis if jet fuel costs dropped by 11 cents/gallon. The Seaway pipeline news is thus a big win for the airlines (and consumers, for that matter) but airline stocks headed south. As people realize the likely effect of the pipeline news, airline shares are likely to move higher."
BoeingBoy
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- Nov 9, 2003
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- #3
As they say, a little knowledge is a dangerous thing. The author obviously picked a few "facts" to support a preconceived notion. Just the first such "fact", the first sentence:
"Over the past year, NYMEX crude oil prices (commonly quoted in the United States) have become disconnected from Brent crude oil prices (commonly quoted in Europe)."
The prices have never been tied together so there is no connection to be "disconnected", although both respond to the same macroeconomic conditions - the world economy in general, the US economy since the US is the world's largest consumer of oil, and the regional economies (with the ongoing mess in Europe is it any surprise that Brent has dropped quite a bit vs the "maybe" recovering US economy recently causing WTI to rise in price?).
Jim
"Over the past year, NYMEX crude oil prices (commonly quoted in the United States) have become disconnected from Brent crude oil prices (commonly quoted in Europe)."
The prices have never been tied together so there is no connection to be "disconnected", although both respond to the same macroeconomic conditions - the world economy in general, the US economy since the US is the world's largest consumer of oil, and the regional economies (with the ongoing mess in Europe is it any surprise that Brent has dropped quite a bit vs the "maybe" recovering US economy recently causing WTI to rise in price?).
Jim
crazystnic
Veteran
- Sep 28, 2010
- 781
- 727
Now your an economist too? impressive...
