Premium #142 – Will Lower Oil Prices Burst the Bubble?

Oil prices have dropped below $90 per barrel last week, amidst the US becoming the largest producer of energy in the world and Saudi Arabia breaking ranks with its OPEC colleagues. As the fuel efficiency of vehicles continues to increase, the supply-demand balance for oil is moving further towards excess supply, indicating a strong likelihood of further price cuts.

At what point does it make sense to keep older aircraft rather than purchase new aircraft? Airlines have been ordering new re-engined narrow bodies at record rates in recent times as fuel prices shot to more than $110 per barrel. With those prices dropping about 20% from their peak, and no end to pricing instability in sight, things are beginning to change.