Aviation stocks came under selling pressure after Indian Oil Corp raised the price of aviation turbine fuel (ATF) by 7.25% with effect from today. While the Jet Airways stock fell up to 9.67% in afternoon trade, the SpiceJet stock fell 6.08% on the BSE. Another carrier InterGlobe Aviation's stock fell 6.94% in trade today.
The rise in the price of aviation turbine fuel (ATF) can be attributed to a surgle in crude oil prices in international market. The Brent crude oil price rose above $83 per barrel on Monday, its highest level since November 2014 ahead of the US sanctions against Iran, which kickstarts from November. Brent crude oil futures LCOc1 were trading at $83.24 per barrel at 0228 GMT, up 51 cents, or 0.3 percent, their highest level since November 2014.
Brent crude prices have been hovering around $80 for sometime now, raising oil costs for India, which relies more than 80 per cent on imports to meet its oil needs. Every dollar per barrel change in crude oil prices impacts the import bill by Rs 823 crore ($0.13 billion). The same is also the impact when currency exchange rate fluctuates by Re 1 per US dollar.
With the rupee too making new lows this year, oil import costs for the oil marketing companies have surged leading to passing on the hike to the aviation sector companies. At 3:13 pm on Monday, the Jet Airways stock was trading 4.96% or 8.95 points lower on the BSE. While the operator of IndiGo, InterGlobe Aviation, was trading 2.03% lower, the SpiceJet stock was down 4.33% on the BSE.
On Sunday, Indian Oil announced that the prices of jet fuel or aviation turbine fuel would be raised by Rs 5,016 per kilolitre or 7.25% from October 1 (today). "Aviation Turbine Fuel (ATF) domestic prices in pan-India have been revised upward effective 1st October 2018 on account of higher jet fuel prices in the international market coupled with weakening of Indian rupee as against US Dollar (exchange fluctuation).
For Mumbai, the increase of about Rs 2650/KL is on account of higher jet fuel prices in the international market and increase of about Rs 2250/KL is on account of weakening of Indian rupee during the last month and Rs116/KL is on account of freight etc. The increase in domestic selling prices of ATF (Rs 5016/KL at Mumbai) is therefore purely on account of the above factors.
The government has levied 5% customs duty on ATF from September 27, 2018, which however, is not being passed on to the airlines," Indian Oil said in a press release. Jet fuel prices are revised every month.