(News Bulletin 247) – Oil fell sharply this Monday after Israeli strikes spared Iranian infrastructure, removing the risk of supply disruptions in the region. Airlines are jumping, supported by the fall in crude oil.

If oil prices had regained some momentum in recent weeks, this rise could only (or almost only) be explained by tensions in the Middle East.

The risk that Israel launches strikes on oil infrastructure in Iran and thus disrupts the supply of black gold in the region has notably boosted prices.

This threat is now over, at least in the short term. Israel’s attack on Saturday targeted missile manufacturing facilities in Iran while sparing critical sites for oil production, AFP reported.

“The much-anticipated Israeli airstrikes on Iran moved away from critical oil infrastructure, deflating the geopolitical risk premium that kept oil prices high,” observes Stephen Innes of Spi AM.

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Totalenergies biggest drop in CAC 40

“If tensions ease further or peace talks unexpectedly gain traction, we could see oil slide as high as $60 a barrel as traders return their focus to the supply glut in 2025, in particularly if China’s economic recovery measures are not enough”, continues the specialist.

Following these announcements, the prices of black gold are plummeting. The December contract on Brent from the North Sea fell 4.6% to 72.19 dollars per barrel while that of November on WTI listed in New York lost 4.9% to 68.28 dollars per barrel.

As is often the case, when oil prices vary significantly, several sectors react. Oil and oil services groups, whose activity depends on crude prices, are in decline. Totalenergies thus lost 1.1%, showing the biggest drop in the CAC 40.

A cost of more than 7 billion euros for Air France-KLM

On the airline side, Air France-KLM climbs 5% on the Paris Stock Exchange, Lufthansa gains 3% in Frankfurt, IAG and Easyjet gain 2.5% and 4% respectively in London.

Air transport groups are also sensitive to changes in oil prices because the fuel bill remains one of the main expense items for companies.

According to the Air France-KLM universal registration document, this invoice represented a total amount of 7.13 billion euros in 2023. As of February 2, the air transport group estimated that an average increase of 10 dollars in the price of a barrel of Brent would lead to an increase in this bill of 553 million dollars (after hedging) and a drop of the same magnitude to an economy of $544 million.

In a note published at the end of September, JP Morgan moved to “overweight” on Air France-KLM. The bank argued that the Franco-Dutch group remained the sector’s stock most sensitive to developments (and therefore the decline) in oil, thus benefiting more strongly from the recent drop in prices.

Air France-KLM will publish its third quarter results on November 7. According to a consensus posted online on the company’s website, analysts expect, on average, revenues of 8.9 billion euros, a gross operating profit of 1.91 billion euros and a profit operating income of 1.236 billion euros.