COMMENTS: Oil Prices Lead to More Costly Skies

It is hard to turn a mere price point in financial markets into a full-fledged story. So even as the cost of a barrel of crude oil continued its inexorable upward climb, closing in the commodity pits at $133, it was the ripple effect of the high price of fuel that attracted most attention, not the price itself. The Story of the Day was the pressure of pricey aviation fuel on the airline industry. NBC led with American Airlines' decision to cut its schedule and increase its fees. CBS kicked off with commodity speculation in the energy market. ABC left the oil story for later in the newscast, deciding to start with a follow-up on Tuesday's headliner as Edward Kennedy walked out of the hospital to go sailing in Nantucket Sound.

The headline grabbing part of American Airlines' belt-tightening was its decision to levy a $15 surcharge for checking a bag. If its rivals follow suit "free baggage service could go the way of free food in coach," warned CNBC's Scott Cohn, reporting for NBC. "Add another indignity to air travel." On ABC, Lisa Stark repeated a prediction that the new bag fee "will mean chaos at airports--more passengers trying to stuff carry-ons through security and into overhead bins." The year-over-year 80% hike in aviation fuel prices costs American an extra $3bn to operate each year. In response it will eliminate at least 11% of its domestic schedule, thus laying off thousands of workers, retiring "gas guzzling older jets" and eliminating some "bargain basement fares," CBS' Nancy Cordes summarized.

Jim Cramer, host of CNBC's Mad Money summarized the impact of high oil prices on the economy for NBC anchor Brian Williams: for motorists, a gallon of gasoline will cost between $5 and $6 by the end of the summer; for consumers, shopping visits to the mall will be scaled back; for airlines, fares will "go up dramatically" and some will go out of business; and for travelers, "a lot of people are going to have to go Greyhound."

ABC's David Muir (embargoed link) told us about skyrocketing demand for oil in India and China and static production of oil from Russia and Saudi Arabia as a set up for his visit to the middle of the Gulf of Mexico, a 200-mile helicopter ride from New Orleans. He showed us a floating oil rig drilling down 27,000 feet to tap into Chevron's 2002 discovery of a 400m barrel field. Production begins next year. Compare that 400m with the 920m barrels that CBS' Anthony Mason calculates is being bought each year by China---or the 848m annual barrels being bought by "a new class of speculators led by pension funds and university endowments." Mason quoted Michael Masters, a hedge fund manager, as estimating that such commodity investing has increased the price of a barrel by at least $50.


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