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LCC stocks slide as oil price volatility increases

21-May-2010

Low cost carrier (LCC) shares came under pressure around the world yesterday, as global stock markets plunged. The oil price (the major cost item for many LCCs) was highly volatile yesterday, gaining 2% early on the New York Mercantile Exchange before plunging 8% by early afternoon to USD64.24 per barrel and settling 2% lower at USD68.01 for Jun-2010 delivery.

Oil prices have fallen in 12 of 14 trading days this month on growing fears for the global economic outlook and steadily building crude oil supplies. With oil denominated in US dollars, the falling value of the euro has also undercut demand for crude oil.

The Dow fell 376.36, or 3.6%, to 10,068 yesterday while Britain's FTSE 100 fell 1.6%, Germany's DAX index 2%, and France's CAC-40 2.3%.

LCCs traded lower around the world, with Brazil’s GOL slumped 7.5%, while JetBlue (-5.7%), AirTran (-5.2%) and Southwest (-5%) fell heavily in the US. In the Asia Pacific region, Virgin Blue (-4.4%) and AirAsia (-4.0%) were hard hit. For more LCC news updates, subscribe to CAPA's Peanuts! Daily.

Selected LCCs daily share price movements (% change): 20-May-2010

Oil below USD70 per barrel

The price of oil had been relatively steady between late February and early May this year, trading in a range of USD80 to USD85 per barrel. The recent drop in oil prices is the largest shift in prices since oil jumped USD13 per barrel in late Dec-2009.

WTI spot price: May-2009 to May-2010

While consumption in large developing markets (particularly China and India) is expected to increase, European and North American demand has not recovered to the extent expected. US crude oil supplies reported their fifth consecutive weekly increase, adding another 200,000 barrels.

However, the US oil inventory report had some bright spots this week. The increase in crude suppliers was much lower than forecast, while distillate stocks declined by 1 million barrels, against a forecast 1.3 million barrel increase.

Globally, oil demand is expected to be 86.4 million barrels per day, just 1.9% higher than in 2009. The International Energy Agency recently revised its oil forecast downward. Global oil output has also been climbing, although OPEC has suggested that the recent USD15 per barrel slump in world oil prices is linked to economic uncertainty and not oil any excess in supply. US refinery capacity dropped 0.5% to 87.9% of capacity in mid-May-2010.

OPEC stated earlier in the year that it was satisfied crude oil prices at USD75-85 per barrel.

Oil prices for the week to 18-May-2010 dropped to USD69.38 per barrel, the lowest point since Sep-2009. Oil prices are now just 17.6% higher than they were this time last year.

Jet fuel prices are also falling back to around USD200-210 cents per gallon. New York, US Gulf Coast and Los Angeles prices all gave up more than 6% this week, with Gulf Coast prices dipping below the 200 cent barrier. Amsterdam exchange prices dropped 6.7%, while Singapore prices recorded the smallest fall, down 3.7% to USD205.6 cents per barrel. Despite the declines, prices are still more than a third higher in the year-on-year comparison.

Daily jet fuel prices (kerosene, cents per gallon) at New York, US Gulf Coast, Los Angeles, Amsterdam, Singapore: Nov-2009 to May-2010

Daily jet fuel prices (kerosene, cents per gallon) at New York, US Gulf Coast, Los Angeles, Amsterdam, Singapore vs Crude Spot price (WTI, USD per barrel): 11-May-2010 to 18-May-2010

 

11-May-10

12-May-10

13-May-10

14-May-10

17-May-10

18-May-10

one week Change

12 month Change

New York Harbor

215.71

221.25

219.1

213.369

205.92

202.78

-6.0%

35.5%

U.S. Gulf Coast

212.46

216.75

213.6

207.87

200.67

197.4

-7.1%

34.2%

Los Angeles

218.46

222.5

218.35

213.87

206.67

203.4

-6.9%

34.8%

Amsterdam-Rotterdam-Antwerp

218.53

222.38

219.51

213.77

207.43

203.8

-6.7%

34.2%

Singapore

213.45

219.4

220.6

215.12

207.02

205.6

-3.7%

39.6%

WTI Spot*

76.37

75.65

74.38

71.61

70.08

69.38

-9.2%

17.6%


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