Originally Posted by
stinsonjr
OK...the hedges will never run out...that is established. The question becomes - what happens when the price of oil goes from $120bbl to $60 in the span of a week? People are blathering on about how oil will never be below $100bbl ever again...but they do not understand the oil business. Oil was at $45bbl in the early 80's, probably higher than the current price on an inflation adjusted basis and there are other points in history where oil prices, as a percentage of peoples incomes, where higher than now probably. I know that oil went from the $45 area to $10 in the span of a month or so. This would seemingly lock in SWA's hedged price which would be much higher. I believe the contracts run 18 months or so...and I know that SWA's traders are savvy and have proably planned for this contigency, but that is where SWA would get screwed - a massive drop in price. One big oil field find, or the Saudi's opening up the pipes and the price drops dramatically and very quickly.
The problem with oil prices now is as much to do with the weak dollar that with a lack of supply. In June of 2005 the Euro was about $.80 to the dollar. Today it's about $1.55. Oil in 2005 was about $45 or 56 Euros/barrel. Today $110 or about 70 Euros/barrel.
Since the Euro is almost double today than it was a few years ago. In Europe, or just about anywhere else for that matter, the price of oil isn't that much higher in "real" terms (i.e. Euros)
Cut that $110 oil in half due to the exchange rates, and the rest of the world is paying about $55 barrel.
Until the U.S. gets it's financial house in order and the dollar rebounds, oil isn't going to get any cheaper--at least not in dollars, at least not for us.