Boeing expects oil bubble to burst in global slowdown

Aircraft maker Boeing expects the price of oil to fall back to a long-term average of between US$70 and US$80 a barrel.

Boeing marketing director Drew Magill said airlines had reduced capacity, with the United States on the brink of a recession and the need to pass on the high cost of oil to passengers.

"But that will be a short-term impact," Mr Magill said.

As the US and the global economy slowed down, demand for oil had also reduced, which should lead to lower prices.

Oil moved back up yesterday towards last week's record peak of just over US$135 a barrel which sent shock waves through the airline industry, with warnings that more airlines would collapse.

Airlines, including Air New Zealand have been reducing capacity to save fuel, and increasing fares to minimise losses.

Analysts said weakness in the US dollar was fuelling oil's rise.

Oil prices have climbed by about a third since the start of the year as investors look to offset inflation and the falling US dollar by piling into commodities.

Mr Magill said Boeing was basing its 20-year sales projections on the oil-price bubble bursting and prices falling back as supply and demand returned to equilibrium.

"It will come back to a long-term trend of about US$70 to US$80, which is considerably higher than the previous long-term trend which was about US$30 to US$40.

"It is going to take longer than we originally anticipated. We didn't think it would be this high for this long," Mr Magill said.

If oil prices remained high longer term, it would impact on demand for air travel and the industry would grow more slowly than forecast.

But aircraft builders would still prosper as airlines moved to replace their jet fleets - totalling 18,000 aircraft worldwide - with more fuel-efficient models.

With every new generation of aircraft, there was a 20 per cent to 30 per cent benefit to fuel consumption. Economic growth of about 20 per cent in the past five years had led to a big increase in demand for aircraft.

Boeing has a backlog of aircraft orders worth US$250 billion.

Most orders were from Asia Pacific, especially China.

- © Fairfax NZ News