United CEO preparing for $100+ oil into next year |
United CEO preparing for $100+ oil into next year
The CEO of United Airlines said his company is bracing for a long-term hike in fuel prices resulting from continuing military operations in the Middle East.
The price of Brent crude oil has surged to over $100 a barrel following the Trump administration’s launch of strikes on Iran. Iranian counterstrikes on U.S. bases and energy fields in the Gulf states have effectively closed the Strait of Hormuz, a major global oil trading corridor.
United CEO Scott Kirby addressed the impact of the surge in oil barrel prices on the airline industry in an interview with CNBC on Tuesday morning, saying he expects high prices to continue into next year.
“I think if you sort of start looking through what’s happening in the Middle East and how long it’s going to take to recover, even once the Straits of Hormuz are open, it seems like a reasonable assumption for us to make, and so we want to plan for something like that,” Kirby told CNBC’s Phil LeBeau.
“We hope it’s better, but the cost of planning for something like that is pretty small,” the CEO continued. “We’re going to do a little less flying than we otherwise would, willing to leave a little bit of demand on the table if oil prices are lower, but want to be prepared for a scenario where oil prices are higher for longer.”
The average price of regular gasoline in the U.S. was up over a dollar from a month ago on Tuesday morning at $3.77, according to AAA. Jet fuel, like gasoline, is refined from oil.
President Trump has taken several steps to mitigate the economic impacts of this conflict on U.S. consumers, looking to boost domestic oil production, temporarily lifting sanctions on the sale of Iranian, Russian and Venezuelan barrels and freeing up some of the U.S.’s oil reserves.
Several economic experts have cast doubt on the effectiveness of these measures, with Rystad Energy Chief Economist Claudio Galimberti telling The Hill last week the “only policy option that there is is to open the Strait of Hormuz.”
“The Strait of Hormuz is causing, currently, between 6 [million] and 8 million barrels a day of production shut in, and even if you make the largest SPR release ever in history, you can get, maximum …1 [million] to 2 million barrels a day … and, by the way, that would be for a limited period of time,” Galimberti said.
Trump issued an ultimatum to Tehran to reopen the Strait of Hormuz, which he later rescinded after Iran’s government threatened to completely close the trading corridor.
On Monday, the president indicated “good and productive” peace talks with the country, and a senior Iranian official said Iran’s leaders were reviewing a U.S. proposal.
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