Airlines blame speculators for fuel prices
'Some estimate prices reflect $30 to $60 per barrel in unnecessary costs'

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Posted: July 10, 2008
8:35 pm Eastern

© 2008 WorldNetDaily

Airline executives are blaming energy speculators for one quarter to nearly half of the current $130-$140 per barrel costs of oil, and they are telling their customers to call Congress and demand something be done.

"Twenty years ago, 21 percent of oil contracts were purchased by speculators who trade oil on paper with no intention of ever taking delivery. Today, oil speculators purchase 66 percent of all oil futures contracts, and that reflects just the transactions that are known," an e-mail from United Airlines to customers said today. "Speculators buy up large amounts of oil and then sell it to each other again and again. A barrel of oil may trade 20-plus times before it is delivered and used; the price goes up with each trade and consumers pick up the final tab. Some market experts estimate that current prices reflect as much as $30 to $60 per barrel in unnecessary speculative costs."

The e-mail was sent to United customers, but it was signed by AirTran President Robert Fornaro, Alaska Airlines President Bill Ayer, American Airlines President Gerard J. Arpey, Continental Airlines Chairman Lawrence Kellner, Delta Air Lines CEO Richard Anderson, Hawaiian Airlines President Mark Dunkerley, JetBlue CEO Dave Barger, Midwest Airlines President Timothy E. Hoeksema, Northwest Airlines President Douglas Steenland, Southwest Airlines CEO Gary Kelly, United Airlines President Glenn Tilton and US Airways CEO Douglas Parker.

The airline industry's biggest players have joined to promote the StopOilSpeculationNow.com website, where officials said consumers can get more information and contact Congress.

In what was called an "open letter" to all airline customers, the executives said the nation's "possible sharp economic downturn" can be attributed to "skyrocketing oil and fuel prices." The costs for a barrel of oil have risen from about $30 a barrel five years ago to the $130-$140 per barrel now.





"For airlines, ultra-expensive fuel means thousands of lost jobs and severe reductions in air service to both large and small communities. To the broader economy, oil prices mean slower activity and widespread economic pain. This pain can be alleviated, and that is why we are taking the extraordinary step of writing this joint letter to our customers. Since high oil prices are partly a response to normal market forces, the nation needs to focus on increased energy supplies and conservation," the letter said.

"However, there is another side to this story because normal market forces are being dangerously amplified by poorly regulated market speculation," the letter said.

"Over 70 years ago, Congress established regulations to control excessive, largely unchecked market speculation and manipulation. However, over the past two decades, these regulatory limits have been weakened or removed. We believe that restoring and enforcing these limits, along with several other modest measures, will provide more disclosure, transparency and sound market oversight. Together, these reforms will help cool the over-heated oil market and permit the economy to prosper," the airline executives said.

Other e-mails have been sent to AirTran, Delta and other airline customer bases, officials said.

CNN noted that the pleas "come as Congress considers a raft of legislation aimed at limiting speculation, particularly from institutional investors such as pension funds, banks and hedge funds."

James May, president of the Air Transport Association, said in a Reuters report, "If Congress does not act soon, this country will not have a viable airline industry."

He estimated the eight biggest air carriers will lose $5.3 billion in 2008, largely due to fuel costs, their highest single expense item.

The anti-speculation website said Congress should impose a variety of limits on the activity and bring in some transparency, so consumers will know who may be in a position to influence the market.

"Congress can dramatically reduce the price of oil and gas, providing immediate relief for businesses and hard working Americans," said the site, which besides airlines is getting endorsements from the Agricultural Retailers Association, American bus Association, American Trucking Associations, Federal Express, the Gasoline and Automotive Service Dealers of America, Petroleum Marketers Association of America and others.

The blame for high fuel prices, however, isn't a unanimous opinion. According to WND columnist Walter Williams, those speculators serve a purpose.

"Let's look at the futures market and for simplicity use corn futures discussed in my May 27 column titled 'Why speculators are good for us,'" he wrote.

"While corn is different from oil, both obey the laws of supply and demand, just as humans are very different from bricks but both obey the laws of gravity. Say that today's price of corn is $7 a bushel. I have a hunch that because of Midwest flooding, higher demand due to droughts and war in other parts of the world, that in May 2009, corn will sell for $12 a bushel. I stand to make a lot of money by buying corn now for $7 a bushel, holding it and in May 2009 selling it for $12 a bushel. If many speculators share my hunch and buy more corn now, today's price, sometimes called the spot price, is going to rise let's say to $10 a bushel.

"Higher prices for corn and everything made from corn might give rise to consumer complaints. While Congress can't stop the Midwest rain, droughts and wars in far off places, it can scapegoat speculators. Let's say that Congress outlaws the corn futures market or makes futures trading more costly. Doing so will definitely lower the spot price of corn. The price might return to $7 a bushel, making corn consumption once again 'affordable.' You might exclaim, 'Isn't Congress wonderful?' But what about May 2009?

"By outlawing or impeding futures trading in corn, Congress encouraged Americans to ignore the future. Had Congress not interfered, people would use less corn now, making more available in May 2009. Thus, one of very valuable functions performed by the speculator is the allocation of resources over time," he wrote.

Instead, he suggested more exploration and drilling.

"What would lower the long-term price of oil is for Congress to permit exploration for the estimated billions upon billions of barrels of oil domestically available, not to mention the estimated trillion-plus barrels of shale oil in Wyoming, Colorado and Utah," he said.

"Some politicians pooh-pooh calls for drilling, saying it would take five or 10 years to recover the oil. I guarantee you we would begin to see a reduction in today's prices even if it took five to 10 years for us to get the first barrel. Put yourself in the place of an OPEC member knowing there would be a greater supply of U.S. oil five or 10 years, hence maybe driving oil prices lower to say $40 a barrel. What will you want to do now while oil is $130 a barrel? You would want to sell as much oil now and OPEC's collective efforts to do so would put downward pressures on current oil prices," he said.


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