Shares in European budget airline easyJet (EZJ) are underperforming their blue-chip peers today in response to further gains in the price of oil – a key input cost – as the USD falls back from recent highs (making it cheaper to buy for those exchanging their home currency into dollars) after the latest update from the US Central Bank (Fed) put to bed the chance of a June rate hike and disappointing Chinese Manufacturing data revived hopes of more stimulus from Beijing and more demand for Oil.

Oil has been on a downward trajectory since mid-2014, helping many airlines to multi-year if not all-time highs, in response to fears of a global supply glut linked to uncertain global demand coupled with a rise in production from OPEC standing firm to maintain market share but the US ploughing ahead with more expensive shale fracking to help it become more self sufficient.

Since the beginning of the year however, Oil has rebounded, putting airline shares into sideways holding patterns, with the likes of EZJ trading up and down in response to the daily moves in the price of a barrel. With Brent Crude Oil having found support at $64/barrel, EZJ shares are now back trading near their 1600p lows of Dec/Jan and key technical indicator 200-day moving average. Support to kick in here, or could a hard landing be on the cards?

As you can see, when the price of oil rallied in April, EZJ shares began to sell off, reinforcing the relationship between the key commodity and its user. The gap-down by the shares mid-May can be attributed to Q1 results which saw a cautious Q3 outlook and expectations of continued FX headwinds in H2 trump an otherwise decent results. Bulls asking whether the EZJ gap down will be filled near-term. Bears hoping for oil to rally hard, and start hurting airline cost bases once more.