Originally Posted by kiez
(Post 10516696)
There I have to disappoint you, since lx ANNOUNCED YESTERDAY TO RAISE fares by more than 3%. This might have to do with the fact that airlines hjedge fuel well in andvance and so rewcent fuel price drop might only affect us in the far future
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Originally Posted by moeve
(Post 10516701)
The problem is aircraft don't fly on oil but Kerosin and that has not come down in price at all.
http://www.iata.org/whatwedo/economi...evelopment.htm (check the chart "Taking a longer term perspective of price movements" and try again) |
Originally Posted by moeve
(Post 10516701)
The problem is aircraft don't fly on oil but Kerosin and that has not come down in price at all.
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Originally Posted by SmilingBoy
(Post 10516767)
:confused:
http://www.iata.org/whatwedo/economi...evelopment.htm (check the chart "Taking a longer term perspective of price movements" and try again) |
Originally Posted by moeve
(Post 10516780)
Do a reality check - remember there was no way airlines could roll over all the losses for those higher fuel prices therefore they are going to keep those surchages for longer to recoup at least some of those losses.
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LH cuts its fuel surcharge for domestic and European flights by 3 € and 5€ for long-haul flights for new tickets issued after Oct 20.
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Originally Posted by LH/LX
(Post 10516778)
What is the % of kerosin prices drop ?
Originally Posted by LH/LX
(Post 10516778)
I belive Kerosin is originally developed from OIL so it must be also dropping in prices !
You might remember that kerosene is refined from oil in a combined production system. So just because crude is dropping this doesn't imply a reduction of kerosene prices - typically when the winter season begins and people start to fill their home heating oil tanks kerosene gets more expensive - even if crude drops in price. Refineries cannot strongly shift production into a specfic direction, i.e. jeopardising gasoil production for increasing kerosene output doesn't work above a certain limit. Btw: That's the reason why airline's kerosene hedging via crude is not a perfect hedge. They still have to deal with a not-insignificant amount of basis risk. Unfortunately TOCOM's kerosene futures have a ridiculously low trading vaolume. |
Agree entirely with you, except
Originally Posted by Triple3
(Post 10523020)
So just because crude is dropping this doesn't imply a reduction of kerosene prices - typically when the winter season begins and people start to fill their home heating oil tanks kerosene gets more expensive - even if crude drops in price.
Whilst I agree that a hedge via crude is not perfect, look at the chart I linked above. The correlation between the the jet fuel price and the price for crude is probably in the range of 0.95-0.99, so I would not worry too much about the slightly different development. |
Originally Posted by SmilingBoy
(Post 10516806)
...which is simply incorrect, since crude and Jet A1 are almost perfectly correlated (albeit with a slightly higher markup now than a few yeas ago due to slightly constrained refining capacity).
:confused: JET A-1 Spot (FOB SIN) vs NYMEX crude 90 day futures: 0.817 JET A-1 Spot (FOB ARA) vs NYMEX crude 90 day futures: 0.917 (based upon 14 year time series) JET A-1 Spot (FOB SIN) vs NYMEX heating oil 90 day futures: 0.837 JET A-1 Spot (FOB ARA) vs NYMEX heating oil 90 day futures: 0.924 (based upon 8 year time series) JET A-1 Spot (FOB SIN) vs IPE crude 180 day futures: 0.952 JET A-1 Spot (FOB ARA) vs IPE crude 180 day futures: 0.95 (based upon 8 year time series) JET A-1 Spot (FOB SIN) vs WTI Spot: 0.872 JET A-1 Spot (FOB ARA) vs Brent Spot (FOB ARA): 0.946 (based upon 14 year time series) So, if you call this "perfectly correlated" I might be interesting in your company's hedging processes and hedge effectiveness testing. ;) :p |
Originally Posted by SmilingBoy
(Post 10523053)
Households do not use kerosene for their heating, but heating oil.
Originally Posted by SmilingBoy
(Post 10523053)
Heating oil is more or less the same as diesel, so this should not affect jet fuel prices more than prices of other oil products.
So think of where the kerosene refining fraction is compared to heating oil or diesel. ;) I agree though wrt JET B. That's much more correlated with naptha prices.
Originally Posted by SmilingBoy
(Post 10523053)
Whilst I agree that a hedge via crude is not perfect, look at the chart I linked above. The correlation between the the jet fuel price and the price for crude is probably in the range of 0.95-0.99, so I would not worry too much about the slightly different development.
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Originally Posted by kiez
(Post 10516696)
This might have to do with the fact that airlines hjedge fuel well in andvance and so rewcent fuel price drop might only affect us in the far future
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Originally Posted by Triple3
(Post 10523086)
:eek::eek::rolleyes::rolleyes:
:confused: JET A-1 Spot (FOB SIN) vs NYMEX crude 90 day futures: 0.817 JET A-1 Spot (FOB ARA) vs NYMEX crude 90 day futures: 0.917 (based upon 14 year time series) JET A-1 Spot (FOB SIN) vs NYMEX heating oil 90 day futures: 0.837 JET A-1 Spot (FOB ARA) vs NYMEX heating oil 90 day futures: 0.924 (based upon 8 year time series) JET A-1 Spot (FOB SIN) vs IPE crude 180 day futures: 0.952 JET A-1 Spot (FOB ARA) vs IPE crude 180 day futures: 0.95 (based upon 8 year time series) So, if you call this "perfectly correlated" I might be interesting in your company's hedging processes and hedge effectiveness testing. ;) :p
I was surprised at your low correlations so made a little analysis myself. As I don't have access to Platts I used data from http://tonto.eia.doe.gov/dnav/pet/pet_pri_spt_s1_m.htm and correlated the series "Europe Brent Spot Price FOB (Dollars per Barrel)" with the series "Amsterdam-Rotterdam-Antwerp (ARA) Kerosene-Type Jet Fuel Spot Price FOB (Cents per Gallon)". These are monthly spot prices, probably both taken in the ARA region. The picture that emerges is remarkably different to what you present. Whether you use 2, 3, 4, ..., 21 years of data does not make a difference: the correlation is always above 0.99 and seems to be around 0.996 in the long-run. Now, whether there are liquid markets to hedge these prices is a different question, but I think that it is without doubt that a change in crude price will have a proportional effect on jet fuel prices. |
Originally Posted by kiez
(Post 10516696)
This might have to do with the fact that airlines hjedge fuel well in andvance and so rewcent fuel price drop might only affect us in the far future
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Originally Posted by SmilingBoy
(Post 10523227)
Good to get into numbers. A few observations:
Originally Posted by SmilingBoy
(Post 10523227)
Originally Posted by SmilingBoy
(Post 10523227)
I was surprised at your low correlations so made a little analysis myself. As I don't have access to Platts I used data from http://tonto.eia.doe.gov/dnav/pet/pet_pri_spt_s1_m.htm and correlated the series "Europe Brent Spot Price FOB (Dollars per Barrel)" with the series "Amsterdam-Rotterdam-Antwerp (ARA) Kerosene-Type Jet Fuel Spot Price FOB (Cents per Gallon)". These are monthly spot prices, probably both taken in the ARA region.
The picture that emerges is remarkably different to what you present. Whether you use 2, 3, 4, ..., 21 years of data does not make a difference: the correlation is always above 0.99 and seems to be around 0.996 in the long-run. |
Originally Posted by SmilingBoy
(Post 10523259)
The main reason it makes sense for companies hedge is to stop them from going bankrupt.
Originally Posted by SmilingBoy
(Post 10523259)
The price at which they hedged the fuel should not have an impact on their marginal cost, as at any moment they can sell or buy fuel at the market price on the spot market. Therefore, the correct marginal cost which should be taken into account for pricing purposes is the current spot market price. Hedging is just speculation, and results in a windfall profit or windfall loss that is sunk, and should not affect prices. The only other thing it affects is the probability of bankruptcy which decreases if the hedging strategy is good.
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