Thursday, October 30, 2008

Oil's Dropped, Price Contracts Haven't

NVDL: Low oil prices (and they were really low for 2 weeks or so) don't necessarily benefit companies who are committed to longer term contracts. If prices increase again, the lower prices we saw have no benefit to these companies once it's time for new contracts. On the other hand, the lower the prices are, the greater the demand for contracts which naturally pushes them up again.

Washington Post: Though plunging oil prices have been a silver lining for the ailing economy, many companies are still covering high costs they locked in months or weeks ago.

As oil prices were spiking in July, Southwest Airlines chief executive Gary C. Kelly told a conference that his company was "very well prepared to weather the storm" and "prepared for $4 jet fuel." But it turned out that what Southwest wasn't ready for was $2 jet fuel.

Coca-Cola Enterprises, the world's largest Coke bottler and distributor, said it had suffered $11 million in losses on "ineffective" attempts to hedge future fuel prices. Britannia Bulk Holdings, a British dry bulk shipping firm, said it had "significant" losses on purchases made earlier in the year for bunker fuel, the type of petroleum its ships use. In a statement, it said "the company entered into a bunker fuel hedge which is currently uncompetitive because it is hedged to prices which are significantly above the current market price of bunker fuel."
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