Airlines renew call for rules on oil speculators

By Kyle Peterson - Analysis

CHICAGO (Reuters) - U.S. airlines, fed up with volatility in oil prices, are renewing pressure on the government to curb market speculation.

Oil prices, up 115 percent from a January low, directly influence jet fuel prices. Surging oil prices can be catastrophic for an industry that seems always on the brink of financial meltdown.

The stakes are especially high for airlines with the economy mired in a deep recession and travel demand off sharply.

"A repeat of last summer's astronomical crude-oil prices will bring the nation's economic recovery to a painful halt," said Glenn Tilton, chairman of the Air Transport Association (ATA), in a June 11 letter to President Barack Obama. Tilton is also chief executive of United Airlines parent UAL Corp (UAUA.O).

"Businesses that spend billions of dollars on fuel each year, already dealing with the impacts of decreased consumer spending, are especially vulnerable," Tilton said in the letter.

Airlines complained loudly about oil market speculation last year as prices raced to a record high near $150 a barrel.

Speculators profit from buying and selling a commodity by predicting future price movements. They provide needed market liquidity, but they also can dramatically influence prices.

It was speculators -- not simple supply and demand -- that led to last year's oil price rally, airline executives say. Others have argued that the connection between investment flows and oil prices is ambiguous.

Soaring oil prices pummeled businesses and consumers last year and helped tip the economy into recession. Airlines, which often list fuel as their highest cost, were hit especially hard.

Despite the insistence of executives in many sectors, the George W. Bush administration resisted calls for added supervision in the commodity markets. Airline heads and leaders of other oil-dependent industries hope the Obama administration will do more.

The White House reiterated its concern about oil speculation on Thursday. But the issue of excessive commodity speculation was not addressed in Obama's proposed overhaul of financial regulations this week.

As oil prices creep higher, however -- above $70 a barrel on Friday -- airline calls for regulation are increasing.

"Of course, I'm nervous all the time about what could happen to oil," US Airways Group (LCC.N) President Scott Kirby told an investor conference last week. "We saw it run last year, for no fundamental reasons that I could see, up to $147 a barrel."

"The fundamental supply and demand just certainly don't seem to justify where it is today," Kirby said.

VOLATILITY CUTS BOTH WAYS