Jetrader - September/October 2008 - 25

the world economy, political tensions in the Middle East and the evidence of demand destruction from the more recent price increases in oil. The ﬁnal of these factors is most critical longer term as many energy analysts believe that global production either has peaked or will peak in the near term, due to declining production rates as previously discussed. On the demand side, consumption shows little sign of abatement even as oil prices increased by more than 450 percent from 1998 to 2007. The more recent price rises have likely been fueled in part by the continued rise in global demand even as oil reached an average price of about $70 per barrel in 2007. A key factor contributing to price volatility has been that information on the energy markets is opaque at best and lagged in nature for political reasons and otherwise. The data on spare production capacity is “unaudited,” and the exact degree to which production declines are occurring is not known in many instances. Moreover, the demand data is sufﬁciently lagged such that the markets do not know the degree of demand destruction, which is occurring as oil reaches ever-higher prices. As such, we are likely to see continued volatility in oil prices given the limited current data available to the market on the crucial metrics of supply and demand. While the business of forecasting is tricky at best, a possible scenario—assuming an “additional” war does not erupt in the Middle East—is that price increases will abate or possibly retreat for the remainder of 2008 and early 2009, as evidence of widespread demand destruction, continues to mount and the global economy faces a slowdown. This in turn should dampen the growth in oil consumption in emerging economies. Thereafter, depending on the extent of the global economic slowdown and the ability (or lack thereof) of Saudi Arabia to ramp up incremental production, oil prices will likely continue their upward march to progressively higher plateaus as new thresholds of price elasticity are broken. Later, we are likely to see an ultimate decline in oil prices as the world economy, and in particular the transportation sector which drives a majority of the demand for oil, makes a signiﬁcant transition to new energy sources. This transition may be a difﬁcult one as rising energy prices could lead to escalating global inﬂ ation and/or become a signiﬁcant drag on globalization and economic growth. 500 450 400 350 300 250 200 150 100 50 0 US China India Other OECD Other Non-OEC Million Barrels Per Day 2007 Actual 2007 Based on “Other 2007 Based on US Demand per Capita OECD” Demand per Capita along with Swire Paciﬁc Ltd. and Air China Development Corp. (Hong Kong) Ltd. SkyWorks Capital provides ﬁnancial advisory services on asset-based ﬁnancings, aircraft selections, ﬁnancial restructurings, debt and equity offerings, strategic assessments, and mergers and acquisitions. SkyWorks Leasing provides thirdparty portfolio asset management and advisory services including aircraft remarketing and freighter conversion program management. SkyWorks Capital Asia is headquartered in Hong Kong and provides ﬁnancial advisory services to aviation industry participants throughout the Asia Paciﬁc region. 1 OECD or Organization for Economic Cooperation and Development includes Australia, Austria, Belgium, Canada, the Czech Republic, Denmark, Finland, France, Germany, Greece, Hungary, Iceland, Ireland, Italy, Japan, Luxembourg, Mexico, the Netherlands, New Zealand, Norway, Poland, Portugal, Slovakia, South Korea, Spain, Sweden, Switzerland, Turkey, the United Kingdom, and the United States. 2 Oil supply and demand data is sourced from the following reports supplied by the Energy Information Administration: Short-Term Energy Outlook - July 2008; International Petroleum Supply, Consumption and Inventories - July 2008; World Production of Crude Oil, NGPL, and Other Liquids, and Reﬁnery Processing Gains - April 2008. Supply includes production of crude oil (including lease About SkyWorks Holdings, LLC: SkyWorks Holdings, LLC is the parent of SkyWorks Capital, LLC and SkyWorks Leasing, LLC, both headquartered in Greenwich, CT. The Company also has a one-third interest in SkyWorks Capital Asia Ltd. condensates), natural gas, plant liquids, other liquids, and reﬁnery processing gains. Oil prices computed based on all countries’ spot price FOB weighted by estimated export volume (dollars per barrel) - July 2008. Population data is supplied by the United States Census Bureau. Jetrader 25

Jetrader - September/October 2008

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