Updated from 11:49 a.m. EDT

Airline stocks gained Tuesday even as the price of crude oil closed at its highest level in almost 14 years.

Investors turned optimistic about the outlook for oil prices after Saudi Arabia called on the Organization of the Petroleum Exporting Countries to boost production quotas. While OPEC has kept production levels tight, a string of attacks on refineries and employees in the Middle East have increased the tension and the price of oil, pressuring airline stocks.

But if OPEC heeds the Saudi call for more oil and prices fall, the airline industry would see an immediate impact, especially network carriers who have not hedged fuel expenses, either betting oil will fall or unable to amass the financial strength to buy the insurance. According to research from Morgan Stanley, a $1 decrease in the price of a barrel of oil makes earnings per share at

AMR

(AMR)

, parent of American Airlines, rise by 50 cents. (

Click here for more on oil and the airlines.)

Optimism that OPEC will relent, oil prices will fall and airlines will be able to leverage lost costs into higher earnings drove stocks on Tuesday. The Amex Airline Index was up 1.6%, pushed higher by American, which rose 39 cents, or 3.7%, to $10.85. Among the low-cost carriers,

America West Airlines

(AWA)

was the strongest, gaining 15 cents, or 1.6%, to $9.74.

Delta Air Lines

(DAL) - Get Report

was another mover, rising 11 cents, or 2.4%, to $4.65 despite the fact the company warned in a

Securities and Exchange Commission

filing that it may have to file for Chapter 11 bankruptcy protection if it doesn't get wage concessions from pilots. On Tuesday, Merrill Lynch defended the stock, telling investors "the comfort of $2.5 billion of cash on hand ... is enough to keep the company afloat for the next year or so."

Bankruptcy rumors are also swirling around

US Airways

(UAIR)

, spurred along not only by high labor costs, but the stubbornly high price of oil, which has caught many in the industry by surprise.

Airline analysts, many of whom entered the year predicting oil would be at $30 a barrel, are still grappling with the new reality facing the companies they cover. On Tuesday morning, Credit Suisse First Boston analyst Jim Higgins lowered earnings estimates on the whole sector, based on an assumption that oil would range between $39 and $40 a barrel, instead of $35 and $36 a barrel, as he previously expected.

"We continue to think that airline stocks have largely discounted expectations of higher fuel prices, but have an upward bias to them in coming months when we think revenues will come in stronger than generally expected," said Higgins.

In the airline industry, it's always darkest before the dawn, but if oil were to stay just shy of $39 a barrel, the airline industry's recovery -- which still hasn't fully recovered from the effects of the World Trade Center attacks, the SARS outbreak, the war in Iraq, the dot-com collapse and the economic recession -- would be delayed again.

Currently, Wall Street expects American to earn $2.63 a share in 2005, but if oil were to stay high, CSFB estimates the carrier would earn $1.35 a share, a little more than half of current expectations.