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Irina Slav

Irina Slav

Irina is a writer for the U.S.-based Divergente LLC consulting firm with over a decade of experience writing on the oil and gas industry.

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Largest Oil Consumers Not In A Rush To Hedge Crude

dreamliner aeromexico

Four major airlines have said they have no plans to hedge fuel deliveries despite higher oil prices. These include Delta, American, United, and Dubai’s Emirates. This may suggest the airlines do not believe the current price increase will be a resilient, long-term one. On the other hand, for at least one of the airlines, it’s just how they do business.

“We have not hedged since the merger and our philosophy has not changed. We are the largest purchaser of jet fuel and we think we would be bidding against ourselves. The market is quite thin beyond 12 months,” said American Airlines’ managing director and assistant treasurer, Amelia Anderson, speaking at a panel during the Airline Economics conference in Dublin.

AirAsia’s CEO Tony Fernandes shares the sentiment. In a Bloomberg interview he said that after airlines have had to deal with WTI at over US$100 a barrel, WTI at US$66 is “still a honeymoon period.” Fernandes added that the airline is not worried about the future price developments because of the strong U.S. shale production, the oil demand outlook, and the gas demand outlook.

The comments of the airline executives come on the heels of IMF’s latest world economic outlook, which forecast the world’s economy will grow by 3.9 percent, a 0.2-percentage-point upward revision. Related: Saudis Unmoved By Oil Price Surge

A growing global economy will certainly mean greater demand for oil, which would support higher prices. In fact, Bloomberg’s oil strategist Julian Lee says, quoting Energy Aspects analysts, that we could next year see Brent at US$100 a barrel, albeit briefly, if new production outside of the United States declines, what with the ongoing production cuts across OPEC and Russia.

The energy consultancy is much more bullish than others about oil demand; it sees it growing by 1.7 to 2 million bpd in 2019, which is in tune with IMF’s economic outlook. Yet this rosy outlook might fail to materialize precisely because of prices: the higher they are, the less firm the demand growth will be. In this context, it would make sense for airlines to not rush to hedge fuel purchases.

By Irina Slav for Oilprice.com

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