A Thanksgiving announcement from OPEC that it will not change its oil output target has produced two very divergent trends in early Black Friday trading: airline stocks are taking flight while oil producer names take cover as WTI crude and Brent crude prices hit multi-year lows. Shares of United Airlines, Delta Airlines and American Airlines are each up 5% or more, while Exxon Mobil and Chevron are down more than 3% in early Friday action.
The 12 members of the Organization of the Petroleum Exporting Countries (OPEC) decided in a Thursday meeting in Vienna that despite an oversupply of oil in the market and drastically declining oil prices, it would maintain its 30 million barrels of oil per day output target in the interest of restoring market equilibrium.
In remarks made to reporters after the meeting, OPEC Secretary General Abdalla El-Badri said that OPEC will maintain the 30 million barrels of oil per day production for the next six months and watch how the market behaves. If the market behaves unfavorably, OPEC says it will act accordingly.
Following OPEC’s statement on Thursday, Brent crude futures fell under $75 per barrel, their lowest levels since August of 2010. These declines have extended into early Friday trading, with Brent crude futures trading at $72.90 and WTI crude futures trading at $69.27, down 6% for the day and 23% year-over-year.
In a research note released Friday morning, Citi analyst Seth Kleinman said that this market reaction may start to focus the minds of petroleum ministries around the world but that it will take significant pain and panic for OPEC to take major action.
“The cartel was tasked with acting like a cartel and it couldn’t fulfill the task, though the task was akin to threading a needle during an earthquake: it needed to produce a cut that would be big enough to balance the oil market but would also be credible, that would address the light-sweet overhang in the Atlantic Basin all while tensions in the Middle East are at historic highs,” he wrote in response to Thursday’s meeting. “After years or inaction and producing basically flat out thanks to the rise of Chinese demand and myriad supply disruptions across the Middle East, expecting the organization to perform in such heroic form was always a stretch.”
By Citi’s estimate, the oil market has a 700,000 barrel-per-day oversupply right now, and this oversupply could increase to 1.3 million barrels of oil per day during the first half of 2015.
Not surprisingly, oil-related equities are tanking in the wake of OPEC’s statement and the Brent and WTI drops. Shares of Exxon Mobil opened $3 lower than their Wednesday close (markets were closed on Thursday for Thanksgiving) and are currently trading for a 3.4% decline. Competitor Chevron opened for Friday trading more than $4 below its Wednesday close and is currently trading for a 5% loss. Year-to-date Chevron is down 12.5% and Exxon is down 9.8%.
The big winners resulting from the pain in the oil industry are airline stocks, with airline names flying high in early Friday trading. Shares of American Airlines — which were up about 5% in pre-market activity – are surging 7.2% and have hit a new 52-week high. Year-to-date, the stock is up a whopping 91%, nearly doubling its value from the start of 2014. United Airlines is up 6.4% and has also hit a new 52-week high; year-to-date the stock is up almost 60%. And rounding out the trifecta is Delta Airlines, which like its peers has also set a new 52-week high and is up 5.7% in Friday trading; year-to-date, the stock is up 70%.