Jet Fuel Prices WILL Be Climbing A LOT, and Soon

[Two Feathers]

The scary truth is that oil is still vastly underpriced for what it allows. Until people realise that we've been paying far too little for oil and gas no one will want to change their behavior. Ultimately, that is what needs to change.

And yes, sooner or later the aviation industry is SCREWED!!

The "dream" will rapidly become a nightmare.

Bummer for sure, but burying our heads in the sand in denial only makes things worse. Time to wake up!

 

[contrail67]

Take a look at this article that came out yesterday.


Jet Fuel Premium Collapse as Airlines Ground Fleets (Update2)

By Robert Tuttle

July 14 (Bloomberg) -- Jet fuel's 100 percent rise over the past year to a record $4.36 a gallon is setting the stage for its decline in the next six months.
AMR Corp.'s American Airlines Inc. and UAL Corp.'s United Air Lines Inc. are among carriers readying their biggest cutback in fuel use since 1991 because of the price. The U.S. airline industry plans to ground 413 aircraft, eliminating 8.8 percent of seating capacity, as increasing fuel costs spur losses of as much as $13 billion, the Air Transport Association says.
Fuel demand will fall 7.5 percent this year, or 95,000 barrels a day, and 104,000 barrels a day in 2009, according to the U.S. Energy Department. That will spur as much as a 90 percent decline in the fuel's premium to heating oil futures, said Mike Busby, manager of oil and refined-products trading for Northville Industries Corp. in Melville, New York.
``People are responding to a doubling of prices and the airline industry is one industry that is responding,'' said Edward Morse, chief energy economist at Lehman Brothers Holdings Inc. ``The markets will weaken significantly after the third quarter.''
The decline in airline fuel consumption parallels the drop in gasoline sales to a five-year low as drivers take vacations closer to home and use mass transit. Crude oil declined 35 percent in the three months after Sept. 11, 2001, a time when airline traffic plummeted 30 percent.
Jet fuel, along with diesel, is traded at a differential to heating oil futures because the fuels are made from similar components of crude oil at the refinery.
Jet fuel, a form of kerosene used to power jets, sold for 19.5 cents a gallon more than the heating oil contract in the New York Harbor market today, twice the average during the past five years, according to data compiled by Bloomberg.
The fuel's premium should decline to 2 to 8 cents a gallon by the fourth quarter, Busby said.
Price Decline
The airline cutbacks ``should help bring the price down,'' said Peter Beutel, president of energy consultant Cameron Hanover Inc. in New Canaan, Connecticut. The current premium is because of ``more than anything the summer demand, the peak demand.''
In 1991, when U.S. jet fuel consumption slid 8.2 percent, crude oil fell 40 percent from a high of $32 a barrel in January to $19.12 by the end of the year. Jet fuel traded at a 1.55 cent discount to heating oil by Dec. 11 of that year, down from a 3.85 cent premium six months earlier.
Lehman Brothers expects crude oil to average about $90 in the first quarter of next year. Oil climbed to a record $147.27 a barrel on July 11 amid rising fuel demand in China and India, and the potential threat of an Israeli air strike on Iran. Airline cutbacks may help send the price to $107 a barrel in 2009, Merrill Lynch & Co. said in a July 7 report.
Falling Demand
Demand for oil will be less than half of initial forecasts, increasing by 616,000 barrels a day, because of the slide in transportation use, Merrill Lynch said.
Jet fuel fell 1.67 cents to $4.2599 a gallon in New York Harbor today. It's gained 50 percent this year and touched the record $4.36 on July 3.
Heating oil for August delivery fell 1.17 cents, or 0.3 percent, to settle at $4.0649 a gallon on the New York Mercantile Exchange today. The contract reached a record $4.1586 a gallon on July 11.
U.S. jet fuel consumption for the four weeks ended July 4 was 2.2 percent lower than a year earlier, according to Energy Department data.
`Demand Destruction'
``There is definitely demand destruction going on,'' Sung Yoo, an oil analyst at JPMorgan Chase & Co., said in a telephone interview. ``We could see a bit of a pullback of the entire oil complex after the summer.''
Last month, Northwest Airlines Corp. said it would ground 14 Boeing Co. 757 planes and Airbus jets during the final three months of 2008. Overall, Northwest is reducing its domestic and international flying by up to 9.5 percent, the airline said in a regulatory filing.
Airline cutbacks are part of a broader trend in which higher fuel prices are reducing consumption. U.S. gasoline demand in the four weeks ended July 4 averaged 9.3 million barrels a day, down 2.1 percent from the same period a year earlier.
The reduction in U.S. fuel consumption may not be sufficient to reverse oil's climb toward $200, said Adam Sieminski, chief energy economist at Deutsche Bank AG. ``The difficulty is that demand is still rising in China and the Middle East and the rest of the world'' while oil production may be leveling off, he said. ``What price does it take to have demand growth go to zero to match zero supply growth? That's very scary because it might take a really high price.''
Overseas Expansion
While U.S. airlines cut back, some carriers overseas are expanding, ``soaking up demand reductions achieved in the United States,'' Merrill Lynch said in a July 4 report.
Exports of the fuel for the first four months of the year averaged 55,000 barrels a day, the highest since 2005, U.S. Energy Department data show. For the week ended July 4, U.S. jet fuel imports fell to 34,000 barrels a day, the lowest since Aug. 19, 2005.
The narrowing of jet fuel's premium to heating oil may be limited if refiners don't increase crude processing rates, Beutel, the energy consultant, said.
``One of the biggest factors here is the simple inability of refiners to bring up their runs,'' he said. ``We are still below 90 percent and that is unheard of.''
Operating Rates
Refiners have operated at an average of 86.4 percent capacity this year, the lowest since 2001, Energy Department data show. U.S. jet fuel production averaged 1.62 million barrels a day, 3.5 percent lower than a year earlier and inventories of 38.8 million barrels were 6.1 percent lower than a year earlier.
The airline cutbacks also may not be as bad as expected, said Jason O'Connor, head of refined products trading at Starsupply Petroleum, a division of GFI Group Inc., in Norwalk, Connecticut.

 

[jetflyer]

Let's hope jet fuel premiums come down as well as oil prices. That would be great!

I think a big correction is very close and we'll see oil close to $100 again. I hope I'm right!

Meanwhile Mexico (one of our largest suppliers) may not have any oil to export by late 2010.....
Their oil fields are producing less and less(very quickly) while their people are using more and more....

From: http://energytechstocks.com/wp/?p=1450

.
Does Your Financial Adviser Know What Jeffrey Brown Knows About Mexico’s Oil Exports? (If Not, Listen Up)
Posted: July 14, 2008

How much does your financial adviser really know about oil? Does he know, for example, that Mexico, one of the top oil exporting countries in the world and a key source of oil for the United States, could see its net oil exports hit zero in late 2010?

That’s the forecast of Jeffrey Brown, the Texas-based petroleum geologist who is one of a small group of unaffiliated energy analysts whose collective research serves as a warning to financial markets to beware unexpectedly sharp falloffs in the amount of crude available to the U.S., China and other giant oil-importing nations. Brown’s work highlights in part how rising domestic oil consumption in big oil-exporting countries such as Saudi Arabia and Mexico can cause those countries’ oil exports to fall faster than would be indicated from a straight analysis of production rates.

Although still largely ignored by Wall Street investment banking firms, Brown’s work is gaining greater acceptance in the energy industry, as the economies of oil producers in the Middle East and elsewhere experience an economic boom that fuels domestic oil demand. In the case of Mexico, Brown told EnergyTechStocks.com last week that, even assuming flat domestic consumption of 2.1 million barrels a day, Mexico’s net oil exports fell so sharply between September 2007 and May 2008 that they are on track to hit zero in late 2010.

Whether or not Wall Street is paying attention to Brown, investors need to, because if his analysis is correct, ironically the global squeeze on “exportable” oil is going to get worse even as more Americans cut back on their driving. Simply put, the price of oil may continue to rise even as the consumption of oil declines in the U.S., the world’s biggest oil user, as the U.S. and China bid up available cargoes coming out of the Middle East to replace lost supply from Mexico and Venezuela, the latter another country whose net exports, Brown says, are going down fast. Moreover, as global dependence on oil shipped through the Persian Gulf grows, so too will oil’s risk premium, a surcharge traders tend to slap on every time it looks like Iran and the West really may come to blows.
For more on what Wall Street doesn’t seem to know about oil see: Analyzing the Analysts (Part 1 of 2) – Schwab Forecast Raises Serious Questions @ Wall Street’s Understanding of Oil.

The Wall Street Journal has been publishing articles about Jeffrey Brown's Export Oil problem. I presented them to you earlier in this thread.
If Mexico isn't exporting Zero in late 2010 it will be in 2011 or 2012.... Not good for Mexico and not good for the U.S.

Also Mexico isn't the only country that is seeing this happen. Saudi, Kuwait, Iran, UAE, Qatar are a few others with falling exports year over year...
Russia according to the WSJ is starting to join that list.
Click here: Wall Street Journal article on Net Export Problem

Some people don't see a supply problem brewing? I sure do and so are more and more analysts, geologists, and the all important "speculators".

Jet

 

[Skank]

The scary truth is that oil is still vastly underpriced for what it allows. Until people realise that we've been paying far too little for oil and gas no one will want to change their behavior. Ultimately, that is what needs to change.

And yes, sooner or later the aviation industry is SCREWED!!

The "dream" will rapidly become a nightmare.

Bummer for sure, but burying our heads in the sand in denial only makes things worse. Time to wake up!

"Vastly underpriced"? The only thing that makes the OPEC countries so wealthy is their geographic proximity to oil. If we used our brains, and spent some money on research, we wouldn't be hostage to oil price upheaval every time someone in the middle east farts. The price is determined by the market, and with the amount of wealth being extorted from this country, you won't find much sentiment to support the "underpriced" valuation you claim.

 

[jetflyer]

The Government seems like they're going to acknowledge peak oil any day now publicly......

From the NY Times:
Ben Bernanke says it's Supply/Demand not Speculation....

Mr. Bernanke was especially pessimistic about any easing of energy prices, dismissing suggestions that they were being driven by speculation in futures markets. Instead, he said high energy costs reflected the markets’ recognition that demand was outstripping supplies.

“Over the past several years, the world economy has expanded at its fastest pace in decades, leading to substantial increases in the demand for oil,” Mr. Bernanke said. “On the supply side, despite sharp increases in prices, the production of oil has risen only slightly in the past few years.”

New York Times

Energy tsunami coming, ex-policymakers warn

WASHINGTON (AP) — A bipartisan group of 27 elder statesmen is sending an open letter to both presidential candidates and every member of Congress saying the country faces "a long-term energy crisis" that threatens the security and prosperity of future generations if swift action isn't taken.

The group includes Henry Kissinger, Colin Powell and six other former secretaries of state or defense, former senators of both parties and a half dozen former senior White House advisers and other Cabinet officers for both Republican and Democratic presidents.

Associated Press


Will something FINALLY start to get done about this coming serious energy crisis by the government!? Please God......

Jet

 

[jetflyer]

The current runup in the price of oil is OVER. The overall direction for a while is going to be down.

A major support line was broken today and that marked the beginning of the correction.

It's correction time. The 200 day moving average is likely the destination. Look for oil to bottom in a month or two around $110-$115 where it meets the rising 200 dma, then consolidates and moves back up.

I'd say $100 is the absolute furthest oil will go down.

Jet

 

[PCL_128]

The current runup in the price of oil is OVER. The overall direction for a while is going to be down.

A major support line was broken today and that marked the beginning of the correction.

It's correction time. The 200 day moving average is likely the destination. Look for oil to bottom in a month or two around $110-$115 where it meets the rising 200 dma, then consolidates and moves back up.

I'd say $100 is the absolute furthest oil will go down.

Jet

I think you're putting too much faith in pure technical analysis. Yes, I think you're right that we've broken an artificial barrier and oil will be heading down for a while, but I don't think there's another barrier at the 200dma. Once oil starts dropping, I think the hedge fund and pension fund managers are going to start pulling money out rapidly. There isn't going to be an artificial floor at the 200dma. It'll keep dropping below that. I predict $100/bbl by the end of the year, $80/bbl by the end of next year, eventually settling down to a consistent price between $65-$85.

 

[7574EVER]

Let's hope jet fuel premiums come down as well as oil prices. That would be great!

I think a big correction is very close and we'll see oil close to $100 again. I hope I'm right!

The sad part is that we are actually getting excited about $100/barrel. I remember not too long ago when oil hitting $100 was a day of misery.

 

[jetflyer]

I think you're putting too much faith in pure technical analysis. Yes, I think you're right that we've broken an artificial barrier and oil will be heading down for a while, but I don't think there's another barrier at the 200dma. Once oil starts dropping, I think the hedge fund and pension fund managers are going to start pulling money out rapidly. There isn't going to be an artificial floor at the 200dma. It'll keep dropping below that. I predict $100/bbl by the end of the year, $80/bbl by the end of next year, eventually settling down to a consistent price between $65-$85.

The only way we'd see those prices below $100 is if the Fed raised interest rates and caused deflation and a cripling global depression!

The world is at peak oil. You know that right? The dollar is going to continue to fall to new lows as well. Our debt mess, the trade imbalance, and the global imbalances with the U.S. to other countries are all too large. A dollar drop is necessary to correct these imbalances.

I see $200 in 2009. $300 in 2010.......

So we're definitely predicting opposite directions! I just think my predictions are educated guesses and not my personal wish.

Jet

 

[PCL_128]

My tinfoil hat wearing friend, not only will oil not be at $300/bbl in 2010, it won't reach $300/bbl in either of our lifetimes. Oil is going down. The fundamentals don't support $100/bbl, let aloe $300/bbl.