Oil’s pullback from recent highs provides support to airline stocks.
Earnings estimates will be cut aggressively if oil settles at current levels.
Traders should monitor the dynamics of longer-dated oil futures to evaluate market sentiment.
United Airlines Stock Rallies As Oil Pulls Back From Highs
Shares of United Airlines gained strong upside momentum as WTI oil pulled back below the $120 level. Other stocks in the segment like Southwest Airlines or Delta Air Lines have also enjoyed strong support today.
High fuel prices put direct pressure on airlines, so any normalization on this front is bullish for United Airlines and other airline stocks. However, it is too early to tell whether the oil market has calmed down as the current move may be caused by profit taking after the strong rally.
United Airlines stock is down by more than 15% year-to-date, but it remains to be seen whether it will attract speculative traders in case oil prices stay near current levels.
What’s Next For United Airlines Stock?
Analysts expect that United Airlines will report a loss of $0.85 per share in the current year and a profit of $6.62 per share in the next year, so the stock is trading at less than 6 forward P/E.
However, analyst estimates have been moving lower in recent months, and this trend will be continued due to high oil prices. The key question is whether the market will see the current disruption as a longer-term problem.
At this point, crude oil futures indicate that traders expect prices near the $90 level at the end of 2022. In case the price of longer-dated futures contracts moves above the $100 level, airline stocks will find themselves under strong pressure as analysts will likely cut their forecasts aggressively.
In this light, traders will stay focused on geopolitical developments. In case the situation normalizes, energy markets will have a chance to get closer to the previous levels. However, if geopolitical tensions escalate, the situation in the energy markets may get out of control and hurt airlines through lower demand and higher costs.
For a look at all of today’s economic events, check out our economic calendar.
This article was originally posted on FX Empire