Oil rally may draw rush of consumer hedging

By Richard Valdmanis and Matthew Robinson - Analysis

NEW YORK (Reuters) - A nearly 70 percent run up in oil prices since February may trigger a round of hedging by big energy consumer industries, like airlines, seeking to protect themselves from a further hike in costs.

Already experts say there have been signs more companies are wading into the market to take out protective positions against increased costs -- a trend that could accelerate oil's rally if it gains momentum.

"I think there has been a bit of it, we know the airlines have been doing it, although probably not to the degree that they were," said Edward Morse, Chief Economist for LCM Commodities in New York. Hedging activity surged during oil's rally to record peaks near $150 per barrel last July.

"I think it is fair to say that consumers have been increasing their hedging activities globally," he said, adding that hedging was up in Asia and Europe, and to a lesser degree, the United States.

Increased buying interest for contracts to lock in prices could add to oil's gains, which traders have so far pegged to optimism that an economic recovery is looming that will lift ailing global energy demand, analysts said.

"Hedgers may be drawn in kicking and screaming because, speculation keeps pushing prices higher, and end up becoming the reluctant accomplices of speculators," said Mike Fitzpatrick, vice president at MF Global in New York.

Earlier this year, airlines reported they were slowing their fuel hedging programs in an effort to take advantage of a stunning drop in oil prices from last July's peaks triggered by the global economic downturn.

But after bottoming out around $34 a barrel in February, oil prices have since recovered to six-month highs near $60.

"Looking at the forward curve and the somewhat more optimistic economic growth expectations, if I had responsibility for protecting my airline's margins, I certainly would be hedging fuel," said Robert Mann, airline consultant at R.W. Mann & Co in New York.

The surge in energy prices could also lead the diesel-intensive trucking industry to attempt to lock in prices, though representatives of the industry said Friday they were comfortable with current market prices.

"We haven't heard anything about hedging recently. With diesel averaging about $2.19 gallon nationally, that's 47 percent lower from this time last year," said Tavio Headley, economist at the American Trucking Associations in Alexandria, Virginia.

(Additional reporting by Robert Gibbons in New York and Kyle Peterson in Chicago; Editing by Marguerita Choy)