Oil prices change faster than market perceptions turn

Sept. 5, 2008
Market perceptions, whatever they are and whatever their influence over oil prices, take a long time to change.

Bob Tippee
Editor

Market perceptions, whatever they are and whatever their influence over oil prices, take a long time to change.

Analysts blame perceptions when prices contradict their forecasts. And since all analysts have been wrong at least once about oil prices, many of them worry about the extent to which perceptions influence markets.

Yet it's no great mystery. Perceptions are all that buyers and sellers of oil have to work with. Some perceptions are just better than others. And some are acted upon with better timing.

Market perceptions embedded in public consciousness turn slower than a laden tanker.

Politicians in the US, for example, keep promising to rescue Americans from $4/gal gasoline. Yet the prices of nonpremium grades haven't been that high on a national average basis for several weeks.

Prices of all oil products are falling because the price of crude oil is plummeting. It has dropped by $25/bbl since mid-July and only fluttered when Russia invaded Georgia and when Hurricane Gustav blew across the Gulf of Mexico and Louisiana coast.

Yet the perception remains that prices are headed the other way. And fees based on that perception keep showing up.

While jet-fuel prices were rising, American Airlines famously started charging for the first piece of checked baggage. Several other airlines quickly followed suit.

Now jet fuel prices are falling. They peaked about the first week in July and have been as much as 96¢/gal below that level since then in a clearly declining trend.

Yet on Sept. 5, Continental Airlines announced that, to help offset high fuel costs, passengers on some flights must pay $15 for each parcel submitted to the tender mercies of its suitcase tossers.

Desperate times call for desperate measures. But Continental's timing seems poor. Will there be a backlash?

This writer knows of a lawn service that hiked its fee by $5/visit, blaming rising gasoline prices at a time when, in fact, prices were falling.

Guess who now mows his own yard. And guess who's watching fares of Southwest Airlines, which also flies out of Houston and still charges nothing for first checked bags.

(Online Sept. 5, 2008; author's e-mail: [email protected])