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7 October 2015
UK Index listed Airlines (IAG, EZJ, RYA, WIZZ) continue to lose altitude today (down 2-3%) as investors react to oil’s extended bounce to the longest in nearly six months. Note US Crude back around $49.6/barrel late Aug highs and Brent around the $53 mark last seen 3 September. The move out of a six-week sideways shift has been sharp and exacerbated by buy orders positioned for a break above the channel ceiling and stops designed to close any failed short positions which had anticipated a revisit of the channel floor.
The reason for oil the break can be attributed to a combination of factors including; A) a weaker USD (belief in rate hike delays) making commodities cheaper, B) comments from both the OPEC chief and the CEO of Royal Dutch Shell about operational and investment reduction leading to price rises and spikes, C) US API data last night showing stockpile drawdowns implying less US production, D) recent US rig count data suggesting the US continuing to pull back on oil production/output in reaction to lower prices and, E) geopolitical risk in the Middle East raising fears of supply disruption. Note, however, US EIA stockpile data today is seen showing another build which could cap gains, while the IMF growth warning does not exactly promote strong consumption trends from emerging markets.
Mike van Dulken, Head of Research
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