Good for ↑
Trump said on November 8 that new US attacks on Iran are highly unlikely, and oil fell further. Jet fuel is made from crude, so cheaper oil should lower fuel bills. That helps airlines Delta and United, while oil producers lose.
Source: Investing.com ↗
When a war scare fades and oil gets cheaper, airlines burn less money on fuel. That lets them keep more of what they earn.
Trump had hinted at renewing attacks after the midterms, but told CNN on November 8 that further US attacks on Iran were highly unlikely to be necessary, though he did not rule them out. Oil kept falling. Brent, the global benchmark, traded near $98 a barrel on November 9, down from about $107 on November 3. Lower crude hurts producers such as Exxon Mobil (XOM), Chevron (CVX) and ConocoPhillips (COP). Airlines sit further down the chain. Delta Air Lines (DAL) and United Airlines (UAL) burn jet fuel, which is refined from crude. US diesel, a close relative of jet fuel, averaged $6.29 a gallon in the week to November 2. If cheaper crude pulls fuel prices down, each flight costs less to run. How much this adds to profit is not yet known.
In the five trading days to November 6, Exxon Mobil fell about 11% and ConocoPhillips about 12%. Valero fell about 13%, while Delta rose about 9% and United about 8%. Analysts quoted by Reuters said they are still waiting to see whether Trump's change in tone after the midterms will last.
Why that may be wrong
Airline shares already rose about 9% for Delta and about 8% for United in the five trading days to November 6. Brent moved less than 1% on November 9. So the extra benefit from this news is small unless oil keeps falling from here.
The link fails if attacks on tankers in the Strait of Hormuz keep oil from falling further. It also fails if Trump's restraint proves temporary. A clear sign would be the weekly US diesel price staying near or above $6.29 a gallon through late November, or Brent climbing back toward $107 a barrel.
The drop in oil may not last. Trump did not rule out new attacks if Iran refuses a strong agreement, and tankers were reported on fire in Hormuz on November 8. Airline shares also rose about 8% in the five trading days to November 6, so part of the benefit may already show in their prices.
Brent fell about 13% to 16% last week (13.2% per Bloomberg, about 16% per Reuters/LSEG), its steepest weekly drop since March 2020, yet attacks on tankers continued, so peace hopes did not remove the supply risk.
Oil traders had been paying extra for crude because the war threatened tankers moving through the Strait of Hormuz. When Trump says new US attacks are highly unlikely, though not ruled out, that fear shrinks. So Brent slipped to about $98 a barrel on November 9, down from about $107 a week earlier.
Diesel and jet fuel are both refined from crude oil, so their prices usually follow crude down after a short delay. US diesel cost $6.29 a gallon in the week to November 2, a level that makes every trip expensive. If crude stays lower, that price has room to fall in the weeks that follow.
Airlines like Delta and United burn huge amounts of jet fuel, so it is one of their biggest bills. It works like a household whose petrol bill drops while its pay stays the same. That's why cheaper fuel leaves these airlines more profit on each ticket, though how much is not yet known.
No comments yet.
Sign in to comment
Earlier connections in the same sector that share a theme with this one.