How are you going to spin this on us GL?

[RT8VA]

Obviously you do not understand the fun natured teasing that goes on between most forum memebers and GL/ General LEE.

I get it but I don't see a lot of good nature here is all.

 

[N1atEcon]

I get it but I don't see a lot of good nature here is all.

Then you need to do a search on GL/hedges. You will see a lot of gloating over the years when SWA had to show a (BIG $$$$) loss for some bad heating oil positions.
Also GL plus some experts have a differing view on operating a refinery than me and my Dad.

 

[maxblast72]

Delta uses about 1 billion gallons per quarter. $150 million loss for Q2 correlates to Delta paying about 15 cents more than they would have with no hedging. Tables from the latest SWA 10-K show SWA eating about 10 cents per gallon with WTI at $90/barrel and 15 cents per gallon at $75 WTI (for Q2) and about $5 million in premium costs.

My guess is most airlines except USAirways absorb an actual loss for contracts already settled and an accounting loss for future hedge portfolios when they report earnings next month.

 

[BILL LUMBERG]

Was Song hedged as well? Hopefully they didn't lose money in this tough quarter.

Give us a call when you turn a profit again Red.....

 

[General Lee]

Then you need to do a search on GL/hedges. You will see a lot of gloating over the years when SWA had to show a (BIG $$$$) loss for some bad heating oil positions.
Also GL plus some experts have a differing view on operating a refinery than me and my Dad.

You and your dad still don't think the refinery deal was a good one? Oh, that's right, oil will only go down in value now, and never go back up....

Even your dad would have hedged oil a few months ago when analysts were thinking gas would go $5 a gallon and Isreal was threatening Iran. Everyone hedged a bit except USAir, and we all know USAir can be "interesting" when it comes to their lack of hedges. Sometimes they win, sometimes they don't, just like those who hedge. Say hi to your dad for me!


Bye Bye---General Lee

 

[Andy]

You and your dad still don't think the refinery deal was a good one? Oh, that's right, oil will only go down in value now, and never go back up....

Even your dad would have hedged oil a few months ago when analysts were thinking gas would go $5 a gallon and Isreal was threatening Iran. Everyone hedged a bit except USAir, and we all know USAir can be "interesting" when it comes to their lack of hedges. Sometimes they win, sometimes they don't, just like those who hedge. Say hi to your dad for me!


Bye Bye---General Lee

Buying a refinery has nothing to do with the price of oil. It's a crack spread hedge.
The Trainer, PA refinery was IMHO a poor choice due to the fact that it can only process light sweet. Unless the refinery undergoes major modifications, it can't process heavy sour.
In addition, Delta plans to optimize Trainer's production to maximize jet fuel production - which is likely not the most profitable (or more correctly the least unprofitable) way to run the Trainer refinery.


As for losing money on hedges, I agree that every airline that hedged has lost money on them. However, it would have been very risky to be naked hedges. USAirways is the only winner in this regard; every other airline is going to have large writedowns on their hedges.

 

[Diesel-9]

Delta just made a deal to buy crude from the Bakken reserve. I read where 30 % of a barrel of oil gets refined into jet fuel. The other refined products can be sold/exchanged for other fuel etc... Think this will be a smart business decision soon. Projected to up and running in the spring of next year I think. The conservative estimate is it will save $300,000,000 annually in crack spread cost. Will pay for itself in its first year.

 

[redflyer65]

You better hope all that 'savings' covers the cost of transporting that product from N. Dakota allll the way to Philadelphia. That's a long way to transport Bakken Shale for a chance at a profit.

This refinery is in the wrong location, that's why it's taken a loss year over year by people that actually know how to operate in this business. Gonna be interesting to watch.

 

[Andy]

Delta just made a deal to buy crude from the Bakken reserve. I read where 30 % of a barrel of oil gets refined into jet fuel. The other refined products can be sold/exchanged for other fuel etc... Think this will be a smart business decision soon. Projected to up and running in the spring of next year I think. The conservative estimate is it will save $300,000,000 annually in crack spread cost. Will pay for itself in its first year.

NFW. Crack spread has declined by ~$8/bbl since April.
That $300M annual 'savings' (NOT a conservative estimate) was based on much higher crack spread. And that was 'guesstimated' by DAL's CEO Richard Anderson in April; not exactly an unbiased source of guesstimates. See link below.
Trainer has a max capacity of 185,000 bbl/day; 67,525,000 bbl/yr.
An $8 crack spread decline equates to a reduction in annual savings of $540,200,000/yr.

April's crack spread was near a 5 year high.

http://www.nytimes.com/2012/05/01/business/delta-air-lines-to-buy-refinery.html

 

[SWA Bubba]

NFW. Crack spread has declined by ~$8/bbl since April.
That $300M annual 'savings' (NOT a conservative estimate) was based on much higher crack spread. And that was 'guesstimated' by DAL's CEO Richard Anderson in April; not exactly an unbiased source of guesstimates. See link below.
Trainer has a max capacity of 185,000 bbl/day; 67,525,000 bbl/yr.
An $8 crack spread decline equates to a reduction in annual savings of $540,200,000/yr.

April's crack spread was near a 5 year high.

http://www.nytimes.com/2012/05/01/business/delta-air-lines-to-buy-refinery.html

Maybe I'm thinking about something else, but in my mind, a large crack spread is NOT a good thing.

Bubba