Oil price falls on OPEC decision

Eleanor Steed
By Eleanor Steed June 25, 2018 11:40

Oil price falls on OPEC decision

The decision of the Organization of the Petroleum Exporting Countries (OPEC) late on Friday (June 22) to increase output by one million barrels a day has caused Brent crude oil to fall to $74.78 a barrel as of 9:17 this morning. However, the production levels are still not considering to be high enough to warrant greater falls in the cost of oil and that airlines are being advised to expect a tighter oil environment this year. Airlines are still hedging their fuel requirements (see latest from Kenya Airways below) but there are those carriers that refuse to try and mitigate this constant risk – American Airlines has one such policy and has seen its earnings suffer as a result of the upwards fuel price trajectory, while Chinese carriers historically have not hedged their fuel requirements and many have now added fuel surcharges to ticket prices to pass the raised costs onto passengers. Passing on the fuel increases through ticket prices is a good risk mitigation strategy if the airline has strong routes and load factors and if confident it can retain market share; for more competitive airlines – low-cost carriers for example – this is a riskier strategy. There are some investors that remain convinced that the taps will be opened even more and the current small fall is only the beginning of a lower rate fuel environment once the US shale production is increased. But as one speaker at our Growth Frontiers conference in Dublin pointed out, “No one can predict the future price of oil – it’s a crap shoot”. A gamble is may be but most analysts are preparing for a $65-75bbl range for the rest of the year.

Eleanor Steed
By Eleanor Steed June 25, 2018 11:40