Due to the significant rally in crude oil prices over President’s Day Weekend, the airlines stocks got pummeled yesterday. United Continental (UAL), Delta Air Lines (DAL), and JetBlue Airways (JBLU) fell about 10%, while US Airways (LCC) was down 12%.
Over the weekend Iran announced that it would stop selling oil to Great Britain and France in retaliation for a planned European oil embargo this summer. The move was mainly symbolic, as Great Britain and France import almost no oil from Iran, but it raised concerns that Iran could take the same hard line with other European nations, like Spain and Italy, that use more Iranian crude.
As a result, West Texas Intermediate (WTI) crude rose by $2.65, or 2.6%, to end the day at $106.25 per barrel. That’s the highest price for WTI crude since May 4th. Brent crude, used to price foreign oil varieties imported by U.S. refineries, rose by $1.61 to finish at $121.66 in London.
“People are just scared about Iran,” independent analyst and trader Stephen Schork said. “They’re concerned about supply.”
Jet fuel prices, which are directly correlated to crude oil prices, rose 1.4% to $3.29 a gallon yesterday, its highest level since May 2011. Since jet fuel prices impact the airlines operating costs, investors sold the airline sector on Tuesday because they believe their earnings will suffer.
There is also the concern that high-energy prices could put a damper on the global economic recovery. If that happens, people will travel less and the airlines revenues will fall.
Even after this severe sell-off in airline stocks, I caution you from investing in this sector. Buying or selling the airlines at this point is really making a bet on what will happen with the situation in Iran (which will in turn directly affect the price of oil), which I think is much too unpredictable.
What do you think? Do you agree with my assessment? Do you think investors should stay away from investing in the airline sector? Join the discussion at TheStockEnthusiast.com!
— The Stock Enthusiast
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