Richard says our fuel campaign is off to a great start

[JoeMerchant]

Once again, Anderson is placing blame with the wrong party.....He and other airline CEOs blamed general aviation for all of their problems also....Easy to point fingers....

The oil runup is being used by speculators....but it isn't caused by speculators....Where was the outcry with real estate speculators and dot.com speculators....Speculators are gambling on the future.....In fact fuel hedging is a form of speculation....

Big business likes to play both sides of the aisle....

 

[Superpilot92]

Demand hasnt gone up over 100% in a year, it IS speculation. Sure supply and demand plays a part in it but you get rid of speculation and oil will go down at least $30-50 a barrel.

 

[JoeMerchant]

Demand hasnt gone up over 100% in a year, it IS speculation. Sure supply and demand plays a part in it but you get rid of speculation and oil will go down at least $30-50 a barrel.

1. How do you "get rid of speculators"?

2. Did you complain about speculators when they ran up real estate prices beyond "resonable"?

3. Is any speculation OK?

4. If we got serious about being energy independent, what do you think that would do to the speculators?

 

[Freeze_gopher]

It isn't "Speculators" it is a certain type of speculation. Real estate isn't the same concept but, yes it is the same mind set. Countrywide home loans wasn't handing out mortgages to everyone with a pulse because they thought it would be fun. They did it because huge banks like Bear Stearns bought huge numbers of these mortgages securitized them and sold them as debt investments. So, there was no exposure to risk for countrywide. The kicker is they new that what made these investments appealing was unsustainable...subprime mortgages (thats where the above average return came from).
Why does the real estate argument not hold water? Go out and buy a housing futures contract. Have you heard of the commodities futures modernization act? How about the InterContinental Exchange? Huge banks (Goldman Sachs is a good example) buy enormous positions in oil futures, and then hold these contract out of the market. These positions cost them between 5% and 7% of the actual value of the contract. What this does is artificially limit the supply of oil available on the market, and it drives up the price. This takes place because the commodities futures modernization act created a loophole that allows these investment banks, hedge funds etc to trade in a highly unregulated market. I would say that illegal and highly unethical practices like wash sales are going to be proven common practice.
Speculation is designed to mitigate price fluctuations, it doesn't work here because these companies have no intention of taking delivery of the oil. (hence it is not similar to airline fuel hedges) This is pure manipulation, these examples are proof that the invisible hand is choking our economy to death.

 

[Soverytired]

Please explain what that means.

Sure.

Knee-jerk opposition to anything your management proposes simply because they proposed it is not a recipe for success. It's not particularly mature, either, and it most certainly makes a management team think "Why bother trying to work with those a$$holes . . .they'll just fight us anyway".

What could possibly be wrong with management suggesting that employees drop a line to their congressmen asking for some action on fuel prices? It's voluntary, it's very important to the industry, it costs nothing .. . . but oh wait . . management proposed it, so we'd better find something wrong with it.

 

[MJ42]

Did you read the memo? "You and other Delta, Comair and Northwest Airlines employees have the chance to let your voices be heard about run-away speculation in the oil trading markets that is driving up prices" (the first line of his memo). What part of that sounds as if he believes there are multiple major factors driving the price of oil?

Yeah, I read it and then sent it to my congressmen. Freeze_gopher's analysis is right. Why do you have an issue with airline execs asking for help with a problem that is having a devastating effect on everyone in the airline industry? Thousands of jobs are being lost with many more to come very soon. Delta is taking a proactive approach by attempting to bombard congress with emails from employees who are hurt every time oil prices increase. It may or may not work, but Delta is trying! What are other airline execs doing?

Courtesy of Fins from another thread:

http://youtube.com/watch?v=UOpcPfAarjY

 

[V-1]

For every person speculating the price will go up, somebody has to speculate the price will go down.

What blaming the speculator is about is finding a victim it is the oldest form of politics. Something bad happens we need somebody to blame. Rally the people into believing that what really is their problem is something other then what it really is and the next thing you know, you own Austria. Villains are political gold.

Increase production, reduce demand, and strengthen the dollar and oil prices will go down.

There is intelligent life on flightinfo.com after all. Who'd have thought?

If speculation was the cause of high oil prices, stockpiles of oil would be increasing worldwide. It is quite clear they are not...despite decreased year over year demand in the U.S. over the last six months.

One would think the CEO of a "global" airline would have traveled the world enough to see what is happening out there. You can't send hundreds of thousands of formerly American jobs to countries where workers are happy to earn a few dollars a day without those same workers consuming more energy as their lifestyle changes as a result.

Note to the American Consumer (thanks to Rage Against The Machine for the quote):

How long...not long
'cause what you'll reap
is what you've sown

 

[V-1]

Huge banks (Goldman Sachs is a good example) buy enormous positions in oil futures, and then hold these contract out of the market. These positions cost them between 5% and 7% of the actual value of the contract. What this does is artificially limit the supply of oil available on the market, and it drives up the price. This takes place because the commodities futures modernization act created a loophole that allows these investment banks, hedge funds etc to trade in a highly unregulated market. I would say that illegal and highly unethical practices like wash sales are going to be proven common practice.
Speculation is designed to mitigate price fluctuations, it doesn't work here because these companies have no intention of taking delivery of the oil. (hence it is not similar to airline fuel hedges) This is pure manipulation, these examples are proof that the invisible hand is choking our economy to death.

These are some good points worthy of consideration. The problem with this arguement is that these investment banks, hedge funds, etc. never take delivery of the product they take a position in.

How can it be that someone who agrees to purchase a contract for, say 1000 barrels of Light Sweet Crude Oil on the NYMEX, doesn't ever actually take delivery of that commodity?

It's because they sell the contract before it expires to someone who is willing to buy it...at whatever price they can sell it for.

If there is no physical delivery of the commodity, there can be no "artificial limitation of supply". The same supply is there, though the pattern may shift a little. The underlying commodity being traded in the contracts is not reduced by speculation when all contracts reach expiration, and if speculation gets "out of control" the actual consumers of oil (those who actually take delivery of those contracts at expiration) will benefit as prices fall dramatically as the contracts held by speculators approach expiration (banks can't hold thousands of barrels of oil in their vaults).

As it is, this market is amazingly self regulating. There are no more commodities being sold than what someone has agreed to supply in the future. Even though the owner of the "right to purchase" a certain quantity of any given commodity may change a number of times before the commodity is actually consumed - there still must be someone who is willing to sell that right for the current price.

Of course it's pretty easy to create a "boogey man" out of something the vast majority of credit binging citizens, low quality journalists, and opportunistic politicians haven't taken the time to understand.

 

[AC560]

Huge banks (Goldman Sachs is a good example) buy enormous positions in oil futures, and then hold these contract out of the market. These positions cost them between 5% and 7% of the actual value of the contract.

And this is how cattle futures, gold, and every other kind of future market works. Raising the margin requirement isn't going to meaningfully impact prices for oil. The number I have seen tossed around is maybe $15 per barrel. As it is Nymex and other exchanges are raising margins.

Increase supply, reduce demand, and strengthen the dollar. Pick a nationwide standard to gasoline as opposed to the hundreds of different state/local standards. These are solution which combat the actual problem.

Playing politics with commodities market is just a bad idea, in the end I assure you we all lose from that. It once again is the idea that every problem we have is the result of a villain. Defeat the villain and you solve the problem. In general though life doesn't really work that way.

 

[Freeze_gopher]

Demand for oil world wide is increasing at about 6.5% annually. Supply is easily pacing demand. The manipulation is taking place in oil FUTURES market. If real supply were the issue then demand would have more than doubled in the last three years, it has not. I don't mean to offend but, Mr. Anderson does understand the real situation. If you need examples of speculators addressing this particular type of speculation/manipulation look up recent congressional hearings on the topic...specifically comments made by George Soros (a currency speculator).

 

[AC560]

I don't mean to offend but, Mr. Anderson does understand the real situation.

I don't know whether he does or not but you clearly don't. Sorry to offend.

 

[Freeze_gopher]

Why does the InterContinental Exchange exist? Why is most of the trading I'm referring to occurring outside the U.S.? Lack of transparency. What part does momentum play in this? A buyer who intends to take delivery of oil can not sit on the sidelines and watch prices skyrocket. He must try and mitigate price, he must enter the market. Why does he not wait for contracts to expire? He has no idea who owns these contracts, are they going to take delivery? He must enter the market and bid on what is available on a given day. With billions of dollars of contracts being artificially withheld price is manipulated. How else could a Goldman "analyst" say he think prices will go to $154 a barrel and the futures market jumps up 8% that day? Momentum is a powerful tool. Also with the lack of transparency i.e trade reporting what about wash sales?
It is happening.

 

[Freeze_gopher]

In addition, banks and hedge funds do own refineries, pipelines, storage facilities etc. These hard assets are valuable, but don't provide big profits. What they do is give proprietary information with regard to capacity. The Fed began allowing banks, hedge funds etc to own these assets in 2003. There has been an enormous move of these companies even pension funds into the energy sector. They have been drawn in by changes to existing laws and the weakening dollar.
Ac560 without information, opinions are like...well you know. It's ok to disagree but personal attacks are not worth the time it took to write them.

 

[777_Jackpot]

777,

It is oil speculation.

Well I hope you are an economist to make such a definitive statement. If you're not, which I suspect is true, there are a lot actual economist and commodity experts who are not convinced that speculation is the cause, or a major contributor. And before you say it, I will agree there are just as many experts that say speculators ARE the reason for our current situation. But the very fact that there is no clear consensus on what is the underlying cause of such a high commodity price, means that Anderson’s actions are just a type of witch hunt, or like many on here have pointed out, just pointing fingers. Trying to fix something without knowing what is broken or if it is in fact broken...is dangerous. Of all people I think pilots should understand that.

 

[V-1]

There is no offense taken here, and none intended. I simply share a different perspective on the subject. Six months ago the CFO of Delta spoke of a "fuel crisis", as if this were a short term problem.

Supply is keeping up with demand at present only because prices have risen as much as they have. There is not infinite production capacity, and demand has been increasing worldwide. Were oil still at $60/barrel, there'd be no incentive for people to conserve. Just watch how fast shortages of fuel available for purchase would occur if our government were stupid enough to mandate price controls based on $60/barrel oil...similar to the case in present day China.

Certainly this is not good news for those of us employed in the aviation industry, but there are macroeconomic realities at work in the world beyond our paychecks.

It takes little for a leader to mobilize uninformed, unintelligent people to take action against a threat, real or percieved, that requires little or no personal sacrifice.

Oil is purchased in the same dollars we all earn here in the U.S. One of the biggest problems is that the dollars we earn aren't worth much anymore, and oil is priced in dollars. If the dollar is worth 35% less today than it was four years ago, guess what...oil is going to cost more. Don't take my writing for gospel...check out this link:

http://ftalphaville.ft.com/blog/2007/11/07/8713/the-dollars-slide-13-down-and-falling-faster/

Mr. Anderson should be rallying the troops to write their representatives to force the federal reserve to quit dropping interest rates, the government to quit printing "free" economic stimulus checks, and congress and the president to quit living beyond the income they receive through taxes. Unfortunately that would take real leadership, as Mr. Anderson's subjects would be directed to lobby against things they receive direct benefit from.

Were the dollar 35% stronger, the price of oil would likely be 35% less. Unfortunately our government and it's citizens are not well known for fiscal discipline.

The falling dollar makes us all poorer, it just effects us more subtly...escaping our attention.