Meltdown

[BachQ]

Squeezed airlines clip wings

Citing fuel prices, carriers cut back on flights - and entire routes in some cases
By Nicole C. Wong, Globe Staff  |  May 7, 2008

Several US airlines, roiled by unrelenting fuel costs, disclosed this week that they are winnowing daily flights to certain destinations, eliminating entire routes, and in some cases withdrawing from airports - and this is just the beginning.  A Goldman Sachs report issued yesterday indicated such cuts will not be enough to compensate for the cost of fuel.

"We expect carriers to explore any and all options - capital raises, foreign capital infusions, strategic transitions, asset sales, alliances - in an attempt to bolster their positions financially and strategically in this quickly deteriorating environment," wrote analyst Christopher Cuomo. "But in a world of sustained $100-plus oil, we are not convinced these actions can provide enough relief to offset the challenges that lie ahead."

Record-high fuel prices this week prompted US Airways to cut 10 routes from its Las Vegas hub effective Aug. 19 and American Airlines Inc. to say it would cease serving Oakland International Airport in California, where it only operated three daily flights, on Sept. 3. In Boston, American will reduce the frequency of flights to Dallas/Fort Worth International Airport from 10 a day to nine a day, and to San Juan from three a day to two a day, on Sept. 3 as part of the 5 percent cut in domestic capacity already slated for this year's fourth quarter.

And JetBlue Airways Corp. is back-pedaling on the plan to set up shop at Los Angeles International Airport revealed in February. LAX was to be the launching point for three daily nonstop flights to New York's John F. Kennedy International Airport and one to Boston's Logan International Airport slated to begin May 21, but the move "is being postponed indefinitely," said airline spokesman Sebastian White.

[BachQ]

Sean, here's an excellent two part excerpt from the ABC's "Catalyst".

PART I http://www.youtube.com/watch?v=xT-ZpYgaHgc

PART II http://www.youtube.com/watch?v=l0MWDQ6JPTo

[BachQ]

Top News May 7, 2008, 12:01AM EST text size: TT
Hedging Against $200 Oil

For the financial whizzes of Southwest Airlines, it just gets more expensive to buy protection as oil prices keep climbing
by Moira Herbst

Oil is getting pricier by the minute. A barrel of the benchmark West Texas Intermediate crude hit a record of $122.73 in intraday trading May 6, before settling at $121.84. And look out: The same day, investment bank Goldman Sachs (GS) said oil prices could hit $200 within the next two years as limited supply growth and rising demand causes a "super spike".

That's not welcome news for airlines. Rising jet fuel prices—one of the industry's biggest costs—have helped send seven airlines into bankruptcy this year, and more could follow. One exception to the sea of red ink so far is Southwest Airlines (LUV), which has saved billions since 2000 by successfully hedging against increases in oil prices. But with each rise in oil prices, that strategy gets more and more expensive.

Rich Payoff

"We would like to see more coverage, and we're reviewing our options," says Scott Topping, treasurer of Southwest and manager of its hedging program. "The fundamentals still point to the risk of higher prices; we feel we need to [hedge]."

A hedge is a financial instrument that allows investors to lock in certain prices to act as insurance against the possibility that the open-market, or spot, price of that commodity will rise. If the price then rises, the company gets a financial payoff that cushions the blow of higher prices. In this way, investors can actually make money using hedging as insurance, giving them an advantage over competitors in the marketplace.

Southwest is currently the only major airline with most of its fuel costs hedged at lower prices, largely because it is the only large carrier with the cash flow to do so. For 2008, 70% of its fuel needs are hedged at $51 a barrel. That means that while competitors have to contend with spot prices hovering around $120 a barrel, Southwest can buy oil at less than half that. Access to this discounted price means Southwest feels less pressure to pass on higher costs to customers, which could afford it more market share as competitors hike ticket prices.

[BachQ]

Bankruptcies on the Rise

Tighter credit, rising commodity prices, and slipping sales aren't slamming just Wall Street;
now small businesses are getting hit



More businesses filed for bankruptcy in April, 2008, than in any month since new bankruptcy laws took effect in 2005, according to a company that tracks federal court filings.  The numbers show a 49% increase in commercial bankruptcies over last year, with an average of 235 daily filings last month compared to 158 in April, 2007, according to data compiled by Jupiter eSources, an Oklahoma City company that runs a database called Automated Access to Court Electronic Records(AACER). More than 5,000 firms filed for bankruptcy in April, 2008, the most in any month since the new laws took effect in 2005.

[BachQ]

Published on Wednesday, May 7, 2008 by ASPO-USA / Energy Bulletin
Ignoring the elephant in the room

The disconnect between peak oil concerns and the presidential race is almost total. As prices at the pump rise, each candidate is now talking about their so-called solutions to the problem. Despite clear new warning signs from Russia, Saudi Arabia, Mexico, and Nigeria that peak oil is nigh, the candidates remain unwaveringly oblivious to the true causes of rising fuel prices, preferring instead to dwell on irrelevant—actually, counterproductive—measures like suspending the federal gas tax during the summer months or taxing Big Oil. This is akin to putting a band-aid on a melanoma.

Our nation's capital is a self-reinforcing bastion of ignorance about the longer term oil supply issues, [Roscoe] Bartlett (R, Md) and a few others excepted. The candidates and their energy advisers are full-fledged members of the "Washington Insiders" club, a group that only talks to each other and gets all of its information from inside the Beltway or pollsters. A brief example suffices to demonstrate the problem. Everybody in our nation's capital reads the Washington Post. If you want to "know" what's going on, it's in the Post. Here are the results of a Google advanced search survey of references to the exact phrase "peak oil" in four newspapers.

[BachQ]

Award winning economist says America has bankrupted itself with the Iraq war
Transcript

TONY JONES: Now to our best and Joseph Stiglitz is one of America's leading economists and one of the most pessimistic. He recently predicted that the subprime mortgage crisis which has burst the US housing bubble and fiercely shaken the debt ridden domestic economy would result in the worst downturn since the great depression. On top of that, he says future administrations will struggle to pay off the massive burden of debt used to fund the war in Iraq. In his latest book 'The Three Trillion Dollar War' Stiglitz sets out the hidden costs of George Bush's Middle East adventure. Stiglitz won the Noble Prize in economics in 2001. Before that he was the chief economist at the World Bank and before that, the chairman of President Clinton's council of economic advisers. He's a Professor of economics at the Columbia School of Business and we caught up with him in Rome earlier this evening. Joe Stiglitz, thanks for joining us.

[BachQ]

Oil price hike 'could hit recovery'

1 day ago

High oil prices could "snuff out" any recovery in the UK economy during the coming two years, economists have warned.

The Ernst & Young Item Club said the modest upswing in economic growth it was predicting for 2009 and 2010 was predicated on the price of oil remaining below 100 US dollars (£51) per barrel.
But it warned that if the cost of oil increased to 120 US dollars (£61) per barrel or 150 US dollars (£76) per barrel in the long-term, it would have serious implications for the strength of the wider economy.
It added that if the cost hit 200 US dollars (£102) per barrel, as one Opec minister recently predicted, then "all bets may well be off".

The group said if oil prices climbed to 150 US dollars per barrel it would trim its forecast for economic growth for 2009 from its current prediction of 1.5% to a weak 1.1%. It said the following year, when many commentators had pencilled in a strong recover in GDP growth to 2.7%, high oil prices could dampen growth to less than 2%. A long-term price of 200 US dollars per barrel for oil would cut economic growth even further to just 0.9% for 2009 and 1.2% in 2010.  It warned that such high oil prices would have an impact across the whole economy, adding that one of the main factors driving the predicted recovery in 2010 was increased consumption as high street spending picked up. But it said if oil prices did hit 200 US dollars per barrel next year, consumption would turn negative and there would be only a modest improvement in 2010.

Hetal Mehta, an economist at the Ernst & Young Item Club, said: "Our predictions don't take into account the impact on public confidence that this type of oil price increase would have and how that would feed back into the economy, so we may well be underestimating the potential downside."



The end

[BachQ]

Here's a snippet for Al Moritz


Natural Gas in New York Advances as Crude Oil Rises to Record
By Reg Curren
May 7 (Bloomberg) -- Natural gas in New York advanced to the highest since December 2005 as crude oil rose to a record.

Oil touched $123.80 a barrel, the highest price since futures began trading in 1983. Gas touched $11.387 per million British thermal units, the highest since $11.88 per Btu on December 29, 2005.
``Gas has been tracking crude more than not of late,'' said Eric Wittenauer, an energy analyst at Wachovia Securities in St. Louis.

Natural gas for June delivery rose 17.7 cents, or 1.6 percent, to settle at $11.327 per million British thermal units at 3:11 p.m. on the New York Mercantile Exchange. Gas has gained 51 percent this year.
Crude oil for June delivery rose $1.69, or 1.4 percent, to settle at $123.53 a barrel in New York. Futures have more than doubled in the past year.

Oil stockpiles rose 1.8 percent to 325.6 million barrels last week, the highest since August, an Energy Department report today said.  Oil traded at $122.04 a barrel before the release of the report at 10:30 a.m. in Washington. Gas also advanced amid speculation a government report tomorrow may show stockpiles rose less than the average for this time of year.

[BachQ]

Energy Markets Not Manipulated, U.S. Regulator Says (Update1)
By Tina Seeley

May 7 (Bloomberg) -- Energy markets aren't being manipulated and speculators aren't a ``major factor'' in record prices, the head of the U.S. Commodity Futures Trading Commission said.  ``We have a high degree of confidence that people are not manipulating the market,'' Commission Chairman Walter Lukken said today at a Senate hearing.

Crude oil futures contracts today touched a record $123.80 a barrel on the New York Mercantile Exchange. It closed today at $123.57 a barrel, up more than double a year ago.  The commission regulates trading on Nymex and other commodity and options markets. Trading on the markets it regulates increased about 27 percent last year, Lukken said.

``We have not seen that speculators are a major factor in driving these prices,'' Lukken said at a Senate Appropriations subcommittee hearing. Market fundamentals ``largely support where prices are at today,'' he said.  Senator Dick Durbin, an Illinois Democrat, questioned Lukken about the effects of raising the margin requirements for oil trades.  Senator Byron Dorgan, a North Dakota Democrat, has voiced support for increasing the amount of money traders must have on hand to participate in oil markets, in an effort to dissuade speculators. ``There would be migration off exchanges,'' Lukken said of the idea. ``It would be a tax on a type of trader.'

[BachQ]

NYMEX crude nears intraday record, in sight of $124
Wed May 7, 2008 8:29pm EDT

TOKYO, May 8 (Reuters) - U.S. crude oil futures continued to rise on Thursday, past Wednesday's record settlement price, and near an intraday high reached earlier in the session on increasing fears about tight world supplies of diesel fuel.

[BachQ]

For UK, 40% RISE ON GAS AND ELECTRIC BILLS
Thursday May 8,2008
Louise Barnett

HOUSEHOLD energy bills will soar by up to 40 per cent this winter as oil prices continue to rise.

Families could be paying a quarter more for their gas as early as this summer, experts have warned.

Wholesale gas prices are already at a record high for this time of year. As investment bank Goldman Sachs predicts crude oil will rise to $200 a barrel from the current high of $123, household budgets look set to feel the strain.

It will heap pressure on families already struggling with average increases of around 15 per cent by the big energy firms since January.

Aamir Baloch of energyhelpline.com said: "If the predicted 67 per cent increase in crude oil prices does happen, wholesale gas prices will increase substantially too, as there's a strong link between the two.

"This will add pressure to domestic energy prices. Annual bills will reach new heights, at £1,300 for a typical home."

Joe Malinowski of TheEnergyShop.com said: "I think we could be seeing another 30 to 50 per cent on the price of a domestic bill. It would be catastrophic."

He predicts householders will see a 25 per cent increase in their gas prices and 10 per on electricity as early as summer.

Rob Laughlin, energy broker at MF Global, said crude rises "would have a severe effect on every consumer". And Tim Wolfenden of  uSwitch.com said high wholesale prices would mean domestic gas bills rising by around 25 per cent this winter.

"We will see price increases earlier than predicted this year, maybe September and maybe another in the first quarter of next year," he said. "I think it will add up to 25 per cent overall."

Wholesale gas prices are closely linked to wholesale oil costs – partly because they are often produced from the same reservoir. Electricity bills suffer as well as gas bills because around one-third of Britain's power generation is gas-fired.

Centrica, parent company of the UK's biggest energy firm British Gas, said wholesale gas prices for the coming winter were now at an average 85 pence per therm.

That price is up 77 per cent on last winter's average and a 26 per cent hike from January's 61p per therm. "These are the highest prices the UK has seen in the run-up to winter," a Centrica spokesman said.

Centrica warns that the UK is increasingly reliant on gas imports from Europe and further afield because North Sea gas is running out.

"We're having to import from Europe, where there is almost no competition in gas and power markets to drive prices down, and this is pushing UK prices up," the spokesman added. Wholesale gas prices make up around half suppliers' costs. Transport, billing and other company costs make up the rest.

Energy information provider Platts said wholesale gas prices in the UK are up 41.8 per cent since the start of 2008. This relates to current prices rather than the forward-looking winter prices quoted by Centrica.

Crude oil has surged in price because investors are putting their money into commodities while the dollar is weak. Concerns about supply disruptions in Nigeria and the Middle East plus demand from fast-growing nations such as China and India have sent oil prices soaring to record levels on the global markets. Crude hit 123 US dollars per barrel yesterday before dropping back.

Oil prices are now up more than 25 per cent from the start of the year and have nearly doubled from about $62 a barrel a year ago.

Goldman Sachs analyst Arjun Murti wrote in a report the world was in the midst of a "super spike" in oil prices that will ultimately force demand to fall sharply. "We believe the current energy crisis may be coming to a head. A 'super-spike' endgame may be in the early stages of playing out," he wrote.

Britain imports 20 per cent of its gas supplies. This is predicted to rise to around 75 per cent by 2015 due to dwindling North Sea reserves, making domestic fuel bills even more sensitive to global wholesale prices.

[BachQ]

High oil prices seen spurring alternative fuel shiftWed May 7, 2008 6:10pm EDT
By Chris Baltimore

WASHINGTON (Reuters) - Record U.S. crude oil futures near $124 a barrel have reached a "break point" that will spur a shift away from an oil-centric transportation sector toward alternatives, energy analyst Daniel Yergin said on Wednesday.

Yergin, chairman of Cambridge Energy Research Associates, told Reuters that U.S. crude oil prices -- which hit a record $123.93 a barrel on Wednesday -- will hasten the adoption of cellulosic biofuels made from switchgrass and woodchips, as well as battery-powered cars and fuels derived from coal.
Crude prices have doubled in a year and risen sixfold since 2002 on rising demand from China and other developing countries, adding pressure to consumer economies already hard hit by a housing and credit crunch.

Yergin countered the notion that global demand for gasoline, jet fuel and other transportation fuels is chiseled in stone because drivers have few current alternatives. "Price really matters," Yergin said. "It doesn't happen overnight but the laws of economics have not been abolished." A sagging U.S. dollar .DXY that has lost half its value against the euro since 2002 and a 350 percent surge in crude oil contract trading on the New York Mercantile Exchange have been the prime engine behind the oil price rise, Yergin said.

With scant global spare oil production capacity, further dollar weakness could send oil prices to $150 a barrel in coming years, he said.  CERA's prediction came the day after investment bank Goldman Sachs said oil prices could scale $200 a barrel in the next two years as part of an ongoing "super spike" in the market. The combination of supply outages in Nigeria, sagging production in Venezuela and Iraq's inability to boost output has spurred a significant "aggregate disruption" of oil supply, Yergin said.
"When you add it all up, it's an aggregate disruption that has taken a few million barrels per day out," he said. "People have underestimated the importance of Nigeria in particular."
Despite the end last week of a strike that halted Exxon Mobil (XOM.N: Quote, Profile, Research) output in the West African country, traders remain concerned about supply disruptions in Nigeria.

[BachQ]

Published on Wednesday, May 7, 2008 by The Oil Drum
The U. S. electric grid: will it be our undoing?
By Gail E. Tverberg

Quite a few people believe that if there is a decline in oil production, we can make up much of the difference by increasing our use of electricity--more nuclear, wind, solar voltaic, geothermal or even coal. The problem with this model is that it assumes that our electric grid will be working well enough for this to happen. It seems to me that there is substantial doubt that this will be the case.

From what I have learned in researching this topic, I expect that in the years ahead, we in the United States will have more and more problems with our electric grid. This is likely to result in electrical outages of greater and greater durations.

The primary reason for the likely problems is the fact that in the last few decades, the electric power industry has moved from being a regulated monopoly to an industry following more of a free market, competitive model. With this financing model, electricity is transported over long distances, as electricity is bought and sold by different providers. Furthermore, some of the electricity that is bought and sold is variable in supply, like wind and solar voltaic. A substantial upgrade to the electrical grid is needed to support all of these activities, but our existing financing models make it very difficult to fund such an upgrade.

If frequent electrical outages become common, these problems are likely to spill over into the oil and natural gas sectors. One reason this may happen is because electricity is used to move oil and natural gas through the pipelines. In addition, gas stations use electricity when pumping gasoline, and homeowners often have natural gas water heaters and furnaces with electric ignition. These too are likely to be disrupted by electrical power outages.

[BachQ]

Retail gas prices soar to fresh record
With nationwide prices at an all-time high of $3.645 a gallon, drivers now pay 20% more than they did last year.
Last Updated: May 8, 2008: 6:28 AM EDT

NEW YORK (CNNMoney.com) -- Retail gasoline prices have jumped to new record high, auto group AAA's Web site showed Thursday. The national average price for a gallon of regular unleaded gasoline rose to $3.645, surpassing the previous record set May 1. Gas prices have been marching steadily higher since the start of the year. Drivers now pay 20% more than they did a year ago, when a gallon of gas cost on average $3.034. The price of gas has been pushed up by record high crude prices. Crude futures closed at an

[ezodisy]

looking good.

[BachQ]

looking good.

Yeah, things are looking rosy.  Bush has performed so many economic miracles that I wouldn't be surprised if he won the Nobel Prize in Economics for his outstanding work .........

[ezodisy]

focus on the positive side and exploit it while you can. things will crash sooner or later anyway

[Al Moritz]

Here's a snippet for Al Moritz


Natural Gas in New York Advances as Crude Oil Rises to Record
By Reg Curren
May 7 (Bloomberg) -- Natural gas in New York advanced to the highest since December 2005 as crude oil rose to a record.

Oil touched $123.80 a barrel, the highest price since futures began trading in 1983. Gas touched $11.387 per million British thermal units, the highest since $11.88 per Btu on December 29, 2005.
``Gas has been tracking crude more than not of late,'' said Eric Wittenauer, an energy analyst at Wachovia Securities in St. Louis.

Natural gas for June delivery rose 17.7 cents, or 1.6 percent, to settle at $11.327 per million British thermal units at 3:11 p.m. on the New York Mercantile Exchange. Gas has gained 51 percent this year.
Crude oil for June delivery rose $1.69, or 1.4 percent, to settle at $123.53 a barrel in New York. Futures have more than doubled in the past year.

Oil stockpiles rose 1.8 percent to 325.6 million barrels last week, the highest since August, an Energy Department report today said.  Oil traded at $122.04 a barrel before the release of the report at 10:30 a.m. in Washington. Gas also advanced amid speculation a government report tomorrow may show stockpiles rose less than the average for this time of year.

I don't think the big picture for natural gas is what you interpret it to be. Of course prices do rise (ever heard of inflation?), and a 1.6 % increase is not much. Certainly, if that happens each month it's a different story, but if I compare last year's lock-in price of $ 2.19 for a gallon of heating oil from our (now former) oil company to the current lock-in price of $ 3.69, then natural gas has ways to go in matching price increases.

[BorisG]

Gunbattles break out in Beirut

May 8, 2008

BEIRUT, Lebanon (CNN) -- Gunfire broke out in downtown Beirut Thursday after Hezbollah leader Hassan Nasrallah said recent government actions amount to "a declaration of open war."

"Just in the past few minutes ... things have gotten a lot worse," CNN's Cal Perry reported from downtown Beirut. The sound of automatic gunfire and rocket-propelled grenades could be heard throughout his live reports.

Perry, who took cover with the Lebanese army, said government forces have not yet reacted to the violence.

The gunbattles were taking place between Shiite and Sunni neighborhoods in the capital, near CNN's Beirut Bureau. Watch Perry call in through gunfire »

The Lebanese army, which is charged with trying to keep peace in the capital, is in a precarious position, Perry explained.

"When you're talking about this much gunfire, when you're talking about RPG fire, it's absolutely ludicrous to think that the army will put themselves between these two factions," he said.

Video of the scene showed tanks and armored personnel carriers moving through empty streets past shuttered stores.

The violence erupted shortly after Hezbollah leader Hassan Nasrallah said the government's attempts to halt Hezbollah's use of a telecommunications system amounts to "a declaration of open war."

"We believe the war has started and we believe that we have the right to defend ourselves," Nasrallah said in a televised speech. "We will cut the hand that will reach out to the weapons of the resistance no matter if it comes from the inside or the outside."

At the same time, Nasrallah called for dialogue, saying, "We are ready, whoever wants a compromise, we are here and ready."

"Those who have taken decisions leading to war, let them withdraw their decisions and there would be no war," he said.

"Am I declaring war? Not at all. I am declaring oppression and self-defense."

Lebanese Communications Minister Marwan Hamadi said Nasrallah's speech "is a direct threat of assassinating us."

"We are not scared of the threat," Hamadi told al-Arabiya. " 'Cutting off the hands' is a direct threat of assassination.

"He says it is a new phase; we say it is a new phase, too. We are determined to keep what is left of the Lebanese government."

Many Lebanese politicians who have opposed Syria's influence in their country have been assassinated in recent years, including former Prime Minister Rafik Hariri and four members of parliament.

The latest tensions between Lebanon's U.S.-backed government and Hezbollah were sparked Monday when the government sacked airport security chief Brig. Gen. Wafik Shoukeir. Watch what touched off the fighting »

The government believes Hezbollah was using the equipment to keep tabs on the movement of its opponents in the government.

Nasrallah defended Hezbollah's use of the monitoring equipment, saying it is the right of "any militia during war."

"This wired network is the most important weapon in the battle," he said.

Nasrallah accused the government of trying to make the Beirut airport "a base for the CIA, FBI and the Mossad," the Israeli secret police.

"That's why they wanted to suspend Brig. Gen. Wafik Shoukeir. ... They want to bring a loyal subject that will serve them at the airport."

In a rare display of anger toward Hezbollah, the highest Sunni Muslim spiritual authority in Lebanon accused the group of taking advantage of a labor strike on Wednesday by using it as a political opportunity, and of fomenting violence in Beirut.

The strike quickly escalated into a flashpoint over Lebanon's 17-month-old political crisis.

Hezbollah supporters continue to block all the roads leading to Beirut's airport, forcing the cancellation of nearly all flights. Watch soldiers, burned cars in streets »

Gunbattles were reported Thursday in Beirut's seaport district of Corniche al-Mazraa. Tires continued to burn in Beirut, particularly in the downtown area, where a Hezbollah sit-in continues around the government buildings.

There were reports of clashes and gunfire in the Bekaa Valley overnight and Thursday morning.

Clashes in Beirut on Wednesday took on a sectarian tone, between Beirut's Sunni and Shiite neighborhoods.

Hezbollah is a Shiite militant group, backed by Syria and Iran, with political representation in Lebanon's government.

Members of Lebanon's other major Shiite party, Amal, also participated in Wednesday's strike.

Lebanon's political crisis began in late 2006, when Hezbollah pulled several ministers out of the government of U.S.-backed Prime Minister Fouad Siniora in an effort to destabilize his government.

The move happened as Siniora's government voted to support an international tribunal to investigate the 2005 killing of Hariri, which U.N. investigators have linked to Syria.

The country has been without a president since Emile Lahoud -- who was pro-Syrian -- left office after his term ended in November and parliament was unable to agree on a replacement.

[Lethevich]

More damage to the economy: doooooommm!

http://www.ajc.com/metro/content/metro/atlanta/stories/2008/04/25/skittles_0426.html