Hacker News Reader

Comment by yieldcrv | Hacker News Reader

The warring parties greatly influence the price of oil futures but they are not the only influences, and there are other markets

The losses of market participants and the gains from insiders is difficult for me to take seriously as a problem in commodities market

I read all of the cases in the article

View on HN

The article displays a laughably out of date view of futures markets, too

  There are people and institutions, such as oil producers, who will need to sell oil at a future date. They want to lock in the price today on those future sales. There are also people and institutions, such as airlines, who have a future need for oil and would like to lock in the price today.

Airlines haven’t hedged fuel in a long time and generally run a policy now of just adjusting fares whenever fuel prices change.

Oil producers sell futures simply to ensure deliver of their oil at a certain date so that someone actually shows up to pick it up.

The rest of the market is speculation, and in particular short term movements have always been very speculative and also believed to be plagued by insider trading. Airlines and oil producers do not care about minute to minute changes.

Airlines can't raise the prices of tickets sold months ago. There is still financial reason to hedge.

"All the airlines cancelling flights and adding extra charges amid jet fuel crisis"

https://www.independent.co.uk/travel/news-and-advice/jet-fue...

You have to read more than the clickbait headline

> While this figure might appear significant, it constitutes a mere 1.5 per cent reduction in total worldwide aviation capacity,

The article cites airlines which raise the prices of already sold tickets. I agree, the impacts of the current jet fuel shortage are still small.

Hedging at this point is basically done to cover the cost of tickets already sold.

The trick is to sell tickets based on the cost at time of sale, and just cancel flights when it's convenient.

It doesn’t work that way. Canceling flights has significant business-impacting downstream effects that go beyond mitigating the loss caused by a bad bet.

When airlines cancel flights, they usually put you on a similar itinerary, not just refund your money and hope you rebook at a higher price.

That said, I don't know a lot of people that book that far in advance, even when their travel plans are well settled.

> The rest of the market is speculation

Metals (miners <> manufacturers) and agricultural (farmers <> food makers) futures are still non-speculative. There are industries that still buy materials from these markets, for delivery, as in they want to see the physical product in their hands. I was surprised to find that out as well

Yeah. Pretty much anyone that wants to buy a commodity for delivery at a future date will use a futures market.

Some markets don’t have a futures market like hay, so people have to buy at spot prices and store it themselves.

Airlines are absolutely still hedging fuel:

https://www.aerotime.aero/articles/airline-fuel-hedging-iran...

Southwest was famously killing it during the oil shocks of the 1990s and 2000s because they had the foresight to buy futures when spot prices were low. See https://southwest50.com/our-stories/the-southwest-jet-fuel-h... - I used to joke that Southwest was a futures trader disguised as an airline.

Unfortunately they ditched the strategy last year, claiming the costs were no longer worth the benefits: https://www.wsj.com/articles/why-southwest-airlines-finally-... and http://www.wsj.com/articles/airlines-pull-back-on-hedging-fu...

I bet they’re regretting that decision now.

SWA was the last major airline to engage in strategic hedging, and came under considerable investor pressure to stop doing that (since it means they can’t lower fares as much when oil is cheap). So they stopped, and investors apparently don’t want airlines to be futures traders disguised as airlines. They prefer credit card referral marketing agencies disguised as airlines.

Now the airlines simply raise fares in lockstep when oil gets expensive, or simply go out of business, like Spirit did last week.

Reply on news.ycombinator.com