Oil production HOT TOPIC
IT END WELL? I
t’s the question that everyone’s been asking since the summer of 2014 when oil first began its
extraordinary fall in value. At the time, a barrel of Brent Crude was
worth more than $110 and has since fallen to below $30 a barrel earlier this year, although at the time of going to press it was about $41 a barrel – still a drop of more than 63%. With fuel costs largely accounting for a
third of airlines’ entire running costs, the drop is a considerable boost for the bottom line for all concerned, with airlines reacting in a number of ways. Qantas Airways has already started postponing the retirement of elderly aircraft as they become more cost-efficient, with CEO Alan Joyce recently admitting its two oldest Boeing 747s have had a stay of execution and remain in service. Meanwhile Campbell Wilson, CEO of Singapore Airlines’ low-cost offshoot Scoot, has argued that fuel’s low cost will mean the opening of new routes that had previously considered economically unviable. However, before the industry rewrites the rulebook according to the new normal,
perhaps the most important question to ask is how long can we expect it to last? Aviation jet fuel consultant and owner
of Astor Consulting Tony Astor argues the current good times won’t last long, with the drop set for correction soon. He adds: “There is obviously no doubt whatsoever that the rapid drop in fuel prices is improving the bottom line of the aircraft and airlines; lots of airlines have reported better results and that’s down to a drop in fuel price. “Of course, the risk for them is all the suppliers of oil sorting the problems out and production will go back down and we will go back to where we were six to 12 months ago.” However, Astor also believes that any
correction to prices could lead to an equally dramatic swing in the opposite direction as many oil companies have sought to cut their own costs in the current market, adding: “For the whole industry to supply new consumers it needs to find new oil fields and develop them for production. What we’re seeing at the moment is people have stopped looking for oil and developing oil fields. w
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