Aviation stocks came under pressure on Monday after brent crude oil prices crossed the $80 per barrel mark in international trade. A higher crude oil price exposes airline companies to the possibility that they would have to pay more for the same amount of fuel to run their operations.
India is the third-largest importer of crude oil and rising international crude oil prices are inflating domestic transport fuel rates in a strong demand environment. The country imported 4.4 million barrels per day (bpd) oil in August, costing about $12 billion, according to government data.
While the SpiceJet stock fell up to 4.15% to 73.85 level in afternoon trade, the InterGlobe Aviation stock was down up to 6.011% to 851 level on the BSE.
The SpiceJet stock has lost 47.85% during the last one year and has lost 48.78% since the beginning of this year. It hit a fresh 52 week low of 73.85 level in trade today.
InterGlobe Aviation, the holding firm of IndiGo airline has lost 22.48% since the last one year and 28.23% since the beginning of this year. The stock is trading 3.31% away from 52-week low of 835.80.
Naresh Goyal-led Jet Airways was the top loser among aviation stocks, falling 7.70% intra day to 212 level in trade today. At 2:54 pm, the stock was trading 6.27% or 14 points lower on the BSE.
Brent, the benchmark for half of world's oil, climbed to $80 per barrel from $71 in the last five weeks, and the Indian rupee lost ground against the dollar by 5-6 per cent during the same period, resulting in expensive crude imports.
India is 81 per cent dependent on imports to meet its oil needs.
JP Morgan said in its latest market outlook that "a spike to $90 per barrel is likely" for oil prices in the coming months due to the Iran sanctions. The bank said it expects Brent and WTI to average $85 and $76 per barrel, respectively, over the next six months.
Oil prices could rise to $100 a barrel by 2019, warn merchants
Oil prices could rise towards $100 per barrel by 2019 as US sanctions against Iran tighten markets, commodity merchants Trafigura and Mercuria said.
Almost 2 million barrels per day (bpd) of crude could be taken out of the market as a result of the US sanctions against Iran by the end of the fourth quarter this year, said Daniel Jaeggi, president of commodity merchant Mercuria Energy Trading, making a crude price spike to $100 a barrel possible
Ben Luckock, co-head of oil trading at fellow merchant Trafigura said crude oil prices could rise to $90 per barrel by Christmas and to $100 by the New Year as markets tighten.