The price of oil spiked yesterday at the end of the day on rumors of a pipeline explosion in Saudi Arabia. Officials denied the report. Gosh, a little bad news sure sends oil prices up,up, up.

What about Iran’s nuclear program? I’m worried.

How about Israel and its new ballistic interceptor missile? Iran’s not gonna like that one. More worries.

“The Iran crisis has led to a sharp rise in the oil price since the beginning of the year,” said a report from Commerzbank in Frankfurt. “Concerns about supply disruptions are likely to persist for some time, justifying a longer lasting risk premium on the oil price.”

Worried.

The subject near and dear to my heart was mentioned briefly in the Republican candidate debate on Wed. night.

Michelle Bachmann noted that gas was $1.79/gal when Obama took office, and she says it’s possible to get back there. (News Flash Rep. Bachmann: Gas was $0.35 when I bought my first car. Kept hoping we would get back there, but..)

Don’t forget the day that President Obama took office, gasoline was $1.79 a gallon. It’s entirely possible for us to get back to inexpensive energy.

Gov. Huntsman from Utah said we are paying for more than just the gas of gas when we fill up our tanks. The price includes tax shipping and handling, so to speak.

When you add up the cost of troop deployments, when you add up the cost of keeping the sea lanes open for the importation of imported oil, the bulk and distribution and terminaling costs (ph), it’s $13 a gallon, so says the Milken Institute.

All agreed $2 gas would be better for everybody and better for the economy.

Get real people! $2, $3, $4 gas at a price over which we have no control or guarantee! I’d just like to know what it will be so I can budget and plan the rest of my life. Let’s hedge.

So much for Obama’s Strategic Petroleum Reserve move!

As PumpGirl noted, oil prices moved higher, perhaps in line with the (modestly) positive economic news from the ADP jobs report.

Meanwhile, gasoline futures at the NYMEX spiked higher by almost thirteen cents! The entire forward curve for the next year is up by more than ten cents. I looked at the bottom month in the next year and the implied pump price is about $3.50. The average is significantly higher.

For managers who are planning ahead, the window of opportunity to lock in prices may not be open for long.

Oil rose over $81/barrel – highest for the year. US supplies declined more than forecast. Dollar dropped.

analyst forecasts, in the week ended Oct. 16, according to the report.

“As long as there’s pressure on the U.S. dollar, there will be upward movement in oil,” said Rachel Ziemba, an analyst at RGE Monitor, an economic research company in New York. “We could see even greater climbs higher, which will put us even further out of whack from the fundamentals.”

Stocks, ExxonMobil and Chevron, are up big time.

Is oil the new hedging tool?

Professor David Enke of the University of Tulsa is an expert on risk management issues. At his excellent site he has pointed out how several airlines have experienced earnings hits from their hedging decisions.

Here is his key point:

So while hedging can help a company “lock-in” to a specific cost structure, if others within the same industry are not hedged, and those companies have pricing power, the hedged company can expect to see higher swings in profit margins and earnings, and subsequently a more volatile stock price.

Put another way, a company can control costs, but not earnings. If every airline engaged in hedging, then all customers would be protected against rising fuel prices, but would also exposed to falling prices.

Meanwhile, there are other hedging strategies. Our own approach differs depending upon the company. For some, locking in a current price is the best move. For others, there should be some protection against falling prices.

It is clear that the airlines did not use the most sophisticated hedging strategies.