This has definitely been a bad week for airlines, both big and small. Just yesterday, Continental announced 3000 layoffs and a 10% cut in capacity. The move brought them in line with other major carriers and now we wonder what's next. Furloughs? Complete shutdowns? Who knows.

I'm going to take the contrarian position. I think we're going to see some good news in the next month or so. After watching CNBC all day, it's clear everyone, traders and politicians alike, are in a panic over oil. I wouldn't be surprised to see a major release of oil from the SPR. The situation has gotten to dire not to act.

I think several reasons argue for a release. First, it's an election year. Enough said. Second, we are hovering on the verge of a deep recession if oil continues to shoot through the roof or even remain steady. No politician wants to deal with a replay of 1970's stagflation. Third, it's quite possible we could lose the domestic airline industry unless oil falls and falls significantly.

The SPR is there for dire circumstances. The economic conditions today certainly qualify as dire, at least as it relates to energy and those industries that rely on energy prices (airlines, automotive). None of this may stave off some sort of tough period for airlines, but it may shorten the duration of the hardship.

Keep an eye out for the Energy Department.

 

The air that flows over our wings and into our engines is still free.

So far.

 

The SPR exists to provide fuel for military ships, planes, and tanks as well as the trucks and trains that deliver their spare parts.

It is large enough to run the military at maximum war footing for several years, but can only run the country as a whole for several weeks.

If we release oil, where does it go? To US oil companies? What do we charge them? How much are they going to charge for the products they refine?

What products will they refine? Autogas? Or Diesel/Kerosene Jet A?

What will we do NEXT month when the SPR is empty?

This is like robbing your child's piggy bank to pay the mortgage...

 

The quicker oil climbs, the closer we come to the bubble bursting. Demand is pulling back, as will China, they are consuming so much oil because the Communist government is subsidizing the country's energy costs. Its only a matter of time before they decide the subsidy is too expensive, and pull back from oil as well. When that happens and the dollar stabilizes, we will see oil below $100 again, maybe even below $60. Oil lost 60% of its value from the 1970's to the mid 1980's...history will repeat.

 

Here is an explanation of the purpose of the SPR for those that don't know:
http://www.whitehouse.gov/omb/expect...1048.2003.html

 

Its a bubble and will burst soon (at around $150- the world breaking point), whats killing us (the US) is the developing countries such as China, that subsidizes oil and gas for its population. There is no way a $1.00 and hour employee can afford $4.00 gas, so the government of these countries pays for the rest (steady buyer no matter what the price is). This does nothing to bring the (oil) price into check, so the rest of the world gets screwed. And since we are the lap dog of the Saudies there is nothing we (US) can do to pressure them to over produce and bring the price down. They just point and laugh at our stupid Eco-freak, Hollywood driven politicians and population. Throw on top of this the pathetically weak dollar and bingo, over priced oil. Investors are using oil as a hedge, its sure thing right now, people need to drive, fly, mow, heat, and produce products. We could OUT produce them (OPEC) and control the market if Scaredy-Cat politicians would come out and say (and vote) "Earth first---then drill the other planets!". But they have no backbone, and are scared the Sierra Club or some other Tree-hugger group will protest them. I'm all for saving the environment, being a big out door guy myself, but enough is enough, the friggin caribou will get over it.

And I do believe this is coming, there are a lot of really smart people trying really hard to figure out how to get the hard to get oil out at a cheap price. And the US has vast reserves of this type of oil, larger than Middle East put together. Heck the oil shale deposit of Western CO is larger than the entire Saudi field(s).

Hang tough, its going to get worse, then better I think. I know I have personally hit a fuel expenditure limit. No driving vacations this summer, and I'm commuting on the Bike which gets 50MPG..rain or shine. I'm also selling the old Bonanza and getting into a Sonex Kit plane that sips fuel.

-nitro

 

thats going to be bottled and sold soon as well......

 

NonRev! No joke that is LoL