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Airlines Blame Woes on Oil Speculation

(Thanks to reader Doug for the heads up)

The 12 major US carriers sent out an email (copied at the bottom of this post) blaming oil market speculation as the reason for the increase in the price of fuel (they say up to $60 of the cost of a barrel of fuel is due to this speculation).  There are lots of reasons why fuel has gotten so expensive, but these airlines are speaking out of both sides of their mouth when they call for the government to step in and regulate oil “market speculation.”  Har har har har.  That is a good one.

Airlines are in favor of de-regulating their industry, and in favor of pricing immunity when they’re in an alliance.  They’re against oil speculation but in favor of fuel hedging (um, where do you think those fuel prices are hedged?)  They want a fair marketplace for oil, but they want foreign ownership caps for airlines.

This makes me a bit sick.

Oh, and airlines have never engaged in questionable pricing behaviors of their own?   This is extremely annoying…

Let the government step in and regulate the oil market so airlines can compete.  Then let the government step in an let Virgin, Lufthansa and Singapore flight from New York to LA and see how long United stays in business.  Please.

Here’s the email:

An Open letter to All Airline Customers:Our country is facing a possible sharp economic downturn because of skyrocketing oil and fuel prices, but by pulling together, we can all do something to help now.For airlines, ultra-expensive fuel means thousands of lost jobs and severe reductions in air service to both large and small communities. To the broader economy, oil prices mean slower activity and widespread economic pain. This pain can be alleviated, and that is why we are taking the extraordinary step of writing this joint letter to our customers. Since high oil prices are partly a response to normal market forces, the nation needs to focus on increased energy supplies and conservation. However, there is another side to this story because normal market forces are being dangerously amplified by poorly regulated market speculation.Twenty years ago, 21 percent of oil contracts were purchased by speculators who trade oil on paper with no intention of ever taking delivery. Today, oil speculators purchase 66 percent of all oil futures contracts, and that reflects just the transactions that are known. Speculators buy up large amounts of oil and then sell it to each other again and again. A barrel of oil may trade 20-plus times before it is delivered and used; the price goes up with each trade and consumers pick up the final tab. Some market experts estimate that current prices reflect as much as $30 to $60 per barrel in unnecessary speculative costs.Over seventy years ago, Congress established regulations to control excessive, largely unchecked market speculation and manipulation. However, over the past two decades, these regulatory limits have been weakened or removed. We believe that restoring and enforcing these limits, along with several other modest measures, will provide more disclosure, transparency and sound market oversight. Together, these reforms will help cool the over-heated oil market and permit the economy to prosper.The nation needs to pull together to reform the oil markets and solve this growing problem.

We need your help. Get more information and contact Congress by visiting www.StopOilSpeculationNow.com.

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  1. I think you’re mixing apples and oranges here. Of course airlines are not interested in reducing margins in their industry through further international competition (although note that some might be receptive to more foreign ownership). I mean, this is human nature — one does not to reduce the profitability of one’s business.

    This does not make their complaints about oil speculation illegitimate, however. There is something terribly wrong with oil pricing these days. As one Senator put it, it is an orgy of speculation. Today, for example, oil went up 5 bucks on an obviously false rumor that Israeli warplanes were stopping at Iraqi air fields for some inexplicable reason. In the past year alone, oil prices have doubled (and are up 500% in the past 5 years) even though demand is now falling and supplies are stable.

    In other words, the oil market is trading like a hot NASDAQ stock. It is a bubble like so many other financial bubbles we have seen in recent years. It is destined to pop. The problem for the airlines is that they may all go broke (except perhaps Southwest) before the bubble pops. Is that a good idea?

    I think it’s nuts, and I think the industry is doing exactly what they should be doing here. I wish more people in America would support them, because the speculation in oil is destroying our economy, enriching a bunch of global SOBs, and killing our airlines and air service in America. And the primary reason is speculation.

  2. I think the backlash against the airlines and their anti-speculation crusade just shows that at this point nobody believes a word they say.

  3. There is a difference in commodity trading when people end up using the product and when people are just using oil as a crutch for the US dollar. Yes, it is whining but the airlines have a point (although nobody cares). If the airlines were smarter they would be asking the GCC countries to stop using the dollar as a benchmark.

  4. I think there is too much emotion in this post. If airlines were smart, they would stop flying to press public oppinion and government to step in this crazyness. Don’t think they deserve a break? Fine. You will need to swim or walk on your next trip. How’s that for a consequence for not understanding the core problem of this issue? By the way,ALL airlines are suffering. Just there are some like the US ones that don’t count with subsidies like Singapore Airlines.

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