Tuesday, June 03, 2008


The price of oil closed down $3.31 today to around $124.50. The decline from the $135 peak is significant because it is occurring while two of the big fields in Iran are out of commission. It is fine with me if the tanker ships sit in Iran's harbor for a year or two. The world does not have to buy oil from Iran ever again. It would be good for Iran and the rest of the world to trade but the world should try to prevent letting fanatics have control of nuclear bombs. After noting that Amadenijhad recently said that Israel will be disappearing from the earth soon and that the USA may not be far behind, Phil Flynn said, "this guy must be a magician, it sounds like all we need to do is sit down to talk to him to make all the words problems disappear".

The talk of war from Iran is just before the big peace pow wow in Saudi Arabia. On June 4, the Saudis will host an interfaith counsel to discuss peace in the Middle East. The Saudis have offered a pipeline to Syria and Lebanon and other financial incentives. The Saudis have even offered to finance a pipeline to connect Basra to Iran and the Saudi oil terminal. It is good for the Saudis to call for peace. We should not have great expectations from this meeting but it is encouraging.

The high price of jet fuel is about to bankrupt Mesa Airlines, Express Jet or other small carriers. UAUA and US Airways are the two most vulnerable major carriers but chances are that the turn in fuel prices hits before even these weaker majors must file. The dramatic increase in fares is being well received. Even the $15 charge for the first bag is being accepted as part of the new reality. AMR needs to cut its work force a little and ground a few gas guzzlers to turn a profit. DAL will go through with its merger with NWA even though NWA will need to ground some old DC-10's. CAL can turn a nice profit with just a minor decline in fuel costs, as a result of increased fares and profitable international routes.

Oil down with Iran under embargo? How low will the price go if a deal is made with Iran?