View Full Version : Wher to for Oil?

05-12-2005, 12:45 AM
The latest issue of Forbes has commentary from Steve Forbes suggesting that the price of oil is more likely to go to $30 than to go significantly higher.

Views? Investment thoughts?

I read somewhere that AMR might be a contrarian play if the price of oil heads down.

05-12-2005, 02:31 PM
AC, AMR would most definitely be a major beneficiary of a large decline in oil prices. Fuel is the airlines second largest expense item (after labor). Airlines are having a difficult tiime raising prices to recover higher fuel costs, but I don't believe that a large drop in fuel costs would be fully passed through to the consumer - so airline margins will expand. Be careful with AMR and the other legacy air carriers - they have a labor cost disadvantage in relation to the newer carriers and they have a lot of debt. If you want to play lower oil prices, perhaps you should either make a direct play (short oil and/or oil producers) or make a diversified long play in airlines and other benifactors (like chemical producers).

Certainly, the demand for oil is cyclical, so a global economic slowdown would be bearish for oil prices. (But also bearish for airline load factors (i.e. capacity utilization). (To further complicate matters - lower oil prices would be somewhat stimulative to consumer demand (because gasoline prices would come down and give the consumer more disposable income)).

Many experts believe that the oil industry is operating near full capacity and that prices are destined to rise over time. I'm not sure what to think - Adios and others here are more knowledgeable on this topic.