In a surprising turn of events, oil prices have surged by 2% after the influential Opec cartel and its allies opted to postpone a planned increase in crude output. The decision comes as demand outlooks remain clouded by economic uncertainties, prompting the group to maintain a tighter grip on supply. Meanwhile, budget airline Ryanair has reported an 18% slump in half-year profits, attributing the decline to aggressive fare cuts aimed at stimulating passenger demand.
Opec’s Supply Surprise Boosts Oil
The upward jolt in oil prices came after Opec+, which includes Russia, chose to postpone an output hike that had been slated for December. The 180,000 barrels per day increase was to be a small fraction of the total 5.86 million barrels per day that the group is currently holding back, equal to about 5.7% of global oil demand.
Brent crude futures, the international oil benchmark, leaped to a high of $74.56, gaining over one dollar on the unexpected supply move. Its U.S. counterpart, West Texas Intermediate, also surged by 2% to hit $70.88. The higher prices come as a relief to producers after a prolonged period of weakness amid fragile demand conditions.
This decision shows that Opec+ still has the ability to steer the oil market, and they’re putting a floor under prices ahead of potential further weakness in demand.
– Oil market analyst at a leading energy research firm
War Jitters Fail to Lift Prices
Interestingly, despite the spread of conflict between Israel and Gaza to Lebanon, where the powerful Hezbollah group has clashed with Israeli forces, oil markets have remained relatively subdued. The fighting hasn’t directly endangered key oil infrastructure or transit routes so far, limiting its price impact.
However, observers caution that any escalation or spillover of the conflict certainly has the potential to rattle oil markets, given the region’s strategic importance as an energy hub. With Opec’s move bolstering prices for now, the situation bears close watching in the days ahead.
Ryanair’s Fare Dilemma Dents Profits
In contrast to climbing oil prices, Ryanair has seen its profits take a hit as it grapples with the post-pandemic travel market. Europe’s largest discount carrier reported an 18% decline in profits for the six months ending September, slipping to €1.8 billion.
The airline pointed to a need for “more price stimulation than originally expected” to lure back travelers, forcing it to cut fares by 7% over the peak summer season. While the discounts have helped boost passenger traffic by 9% compared to pre-Covid levels, they’ve come at the expense of the bottom line.
We remain cautious on the third quarter’s average fare outlook, expecting them to be modestly lower than the third quarter prior year.
– Ryanair CEO Michael O’Leary
Despite the challenges, O’Leary noted that forward bookings signal robust demand and a moderation in the pace of fare declines. The airline also took aim at aircraft maker Boeing over delivery delays that prevented Ryanair from carrying an additional 5 million passengers, saying compensation from the manufacturer doesn’t make up for the lost opportunity.
As the global economy navigates an uncertain path between inflation and growth risks, the oil and airline sectors are providing real-time insights into the evolving dynamics of supply, demand, and pricing. For now, Opec’s sway is keeping oil prices aloft, while Ryanair’s experience underscores the delicate balancing act in the aviation industry as it seeks to rebuild in the wake of Covid-19.
