Wednesday, January 7, 2015

Inoculating The Fuel Market From Invasive Competitors

Looking at the fuel market there are certain vulnerabilities for price on a barrel of oil. One is the difficulty of getting it out of the ground and running it to a refinery. That is the American flu for the Saudi counter parts. Second is the mass quantity of lower grade petroleum coming out of Russia. Third is the market slump symptom from China's economic down turn. The Saudi Arabian Oil cartels have decided to inoculate the whole mess with a free fall in per barrel price of Arabian Light Crude. As gleeful as I am about filling up my  car at 1.99 a gallon, I know pay day will come soon for the Arabian peninsula region.

It will have capped shale oil wells in North America and reduced the need for a Keystone Pipeline. It will collapse the Russian economy and demolished the oil backed Ruble. China, a large customer will reap the benefit of this oil free fall during its own recession. The Saudis will have inoculated the oil market from upstart threats to its supremacy. They will ride an oil per barrel price increase without pesky bugs infecting the schemes, it has for the world. Unfortunately American production is one of those bugs infecting its plans. Hence "the Great Oil Shot" infects America. Cheap oil for everyone which will starve out Russia to the East and cap wells to the west.

Mean while back at the airport, the ripple effect is felt. $2.00  a gallon Jet-A, reduces the need for super efficient airplanes until later, when fuel price gauging returns to normal. The risk of pricing abates for a season. Airlines can get by with what they have paid for in older equipment. Boeing's sales pitch gets a cold customer response with a indifferent comment, "and your point is?" The scheme of things ripples through the oil dependent markets until stability is reached through a Saudi price inoculation. The current flu bug will only last until after the election of 2016 when per barrel oil prices will magically rise again to a traditional level of over $100 per barrel.

That will mark the end of the oil price influenza. Most of the flu bugs will have been killed by then. The oil production will go back once more, with uncapping wells and building pipeline, but only five years further down the road. In which time the oil peninsula will have pumped out more oil at higher prices before taking another oil flu shot.

What hasn't gone away is the need for long term planing for buying supper efficient super airplanes in spite of the Arab Oil Inoculation. Only the order book will pause until airline sees how the oil play is installed. Jet A fuel is tied to demand and supply. Travel remains on a constant slope line ever increasing as the world's population continues its growth. The sub-line is the world's wealth continues to grow on the same slope. Even the Saudi's has a bottom to its oil pit.