CINCINNATI, Ohio - The airline industry will have to get used to paying for fuel based on crude oil prices in the mid-$40 per barrel range.

Don Luke, an oil economist with Fimat USA, predicted that crude oil prices would settle into the $40 to $46 per barrel range this year. When the price drops to below $45 a barrel, airlines should stockpile their fuel supplies, Luke told members of the Regional Airline Association (RAA) during their recent annual convention here.

The price of oil hit a three-month low at $47 per barrel on world oil markets on May 19; however, last week it was back up to $51 a barrel. Oil had peaked at $58 a barrel in early April.

Because of the higher oil prices, airlines are projected to pay $6.8 billion more this year for fuel than the $21.8 billion they collectively paid last year, said John Heimlich, chief economist for the Air Transport Association (ATA). Because of the higher fuel prices, the industry is expected to lose $5 billion this year, he added.

World tensions and speculation has driven up the price of crude, Luke said. However, supply is now exceeding demand. The international oil industry has been able to add to its inventory in 13 of the last 15 weeks.

"We are looking good on crude and that is why we are starting to see prices abate a little bit. There is plenty of crude around," Luke said. The second quarter is traditionally a time when the industry builds its inventories because it falls between periods of high demand for heating oil in the winter and gasoline in the summer.

OPEC is demonstrating its ability to control the price by controlling production, Luke said. "OPEC's real price objective is $46 a barrel. I don't care what they say, their actions are pegged to $46 a barrel."

Luke advised the airlines that if the price dips below $45 per barrel, they should buy. "We might see sub-$45 crude. This will present a very good buying opportunity."

However, Luke said that OPEC would not let the price drop below $40 a barrel. "When the price approached $40 back in December, they cut their production rate. OPEC is very supportive of $40 crude."

A soft economy may drive the price down farther, but it should still hold at $40.

"I think the economy is just in a soft patch," he said. "If it is able to hang in there with some small growth, then I think crude will not go below $40. I think the average this year will be $46 a barrel."

But he added, "All bets are off if we go into a global recession. We could see crude oil down to $20 if that happens. We are so interlocked with the Asian economies right now. If we falter here in the U.S., or if Europe falters, it will affect the global economy, which will affect prices," Luke said.

He noted that the U.S. economic growth rate has dipped from 4.5 percent to 3.9 percent. "Mounting inflation fears and high interest rates will make '05 a difficult year," he said. "That is what we are seeing right now."

>>Contacts: Don Luke, Fimat, (646) 557-9000; John Heimlich, ATA. (202) 626-4000.<<