I wrote an article Markets Have No Memory Whatsoever where I doubted that $100 per barrel oil price would not cause a recession.
The online version of the Financial Times has two interesting articles. First, Fuel prices spur American to drop flights (subscription might be required) where Doug Cameron wrote that American Airlines is temporarily reducing service.
American Airlines on Friday said it would temporarily cancel 15 domestic services and drop one flight to Japan after the price of jet fuel soared to almost $125 a barrel in a move likely to be followed by other carriers.
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American said the refining crack spread for jet fuel reached $58.64 on September 28 on top of crude costs of $66.35 a barrel. This compares with a crude price of $45.94 a year ago and refining costs of just $11.31.
"Jet fuel prices have been rising even faster than crude oil prices for the last year, but it was the 39 per cent rise in jet fuel costs in the last month alone that pushed us to make this decision," said Dan Garton, executive vice-president at American . "We have made incredible progress in lowering our operational costs for over two years now. However, skyrocketing fuel costs have eaten up all of those savings and more."
And second, Indonesia shocks with fuel price moves (subscription might be required) where Shawn Donnan wrote that the Indonesian government raised key fuel prices substantially. Please note that Indonesia is an OPEC member that is also a net importer of oil.
Indonesia's government on Friday night raised key fuel prices by a higher-than-expected average of 126 per cent and announced a plan to bring prices in line with the global market in moves likely to test the patience of its people for tough reforms.
President Susilo Bambang Yudhoyono's decision to slash fuel subsidies and more than double prices just days before the Islamic holy month of Ramadan marks one of the most daring economic reforms launched by a leader in Jakarta since the 1998 fall of strongman Suharto.
These two articles help to shed more light on the economic difficulties companies and countries face as oil prices rise. I doubt strongly that the world can sustain a $100 per barrel oil price without falling into recession. As I mentioned in my prior article, I just hope we do not get to $100 per barrel oil price to find out.
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