16 July 2008
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Johannesburg — JET fuel's 100% price rise over the past year to top $180 a barrel is setting the stage for its decline in the next six months. In the US, American Airlines and United are among the carriers preparing for their biggest cutback in fuel use since 1991.
The US airline industry is planning to ground 413 aircraft, cutting seating capacity 8,8%, as increasing fuel costs spur losses of as much as $13billion.
Around the world and in SA, airlines are also cutting back on capacity.
The US energy department estimates that fuel demand will fall 7,5% this year, or 95000 barrels a day, and by 104000 barrels a day next year.
"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. "The markets will weaken significantly after the third quarter."
The decline in airline fuel consumption coupled with a steady drop in automotive demand may just provide the tipping point for the overheated oil market.
"At the margins, small changes in demand could result in significant changes in the market," says Az ar Jammine, chief economist at Econometrix. "It is a very tight game."
Jammine points out that for the past 20 years global economic growth averaged 4% a year, while demand for crude grew 1,5% a year.
While conceding that demand from the emerging economies rose sharply in the past few years, Jammine believes speculators have also driven oil prices higher.
If he's right, and these prices are not supported by real demand, the market could drop rapidly. The automotive and airline industries could be the catalyst.
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