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Page added on October 30, 2008

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Oil’s Dropped, but Price Contracts Haven’t

As oil prices were spiking in July, Southwest Airlines chief executive Gary C. Kelly told a conference that his company was “very well prepared to weather the storm” and “prepared for $4 jet fuel.” But it turned out that what Southwest wasn’t ready for was $2 jet fuel.

Famous for its ability to play the oil markets to lock in low fuel costs, Southwest made some bad bets in late spring and summer. Now, it’s paying a heavy price just when it should be celebrating lower costs. A $189 million loss on fuel contracts put the company in the red for the first time in 17 years.

Southwest isn’t alone. Though plunging oil prices have been a silver lining for the ailing economy, many companies are still covering high costs they locked in months or weeks ago.

Light, sweet crude for December delivery settled at $67.50 a barrel yesterday on the New York Mercantile Exchange. But many airlines, spooked by forecasts by analysts such as those at Goldman Sachs who were predicting $200-a-barrel crude oil, locked in prices higher than yesterday’s for large portions of their fuel needs.

Washington Post

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