Singapore Airlines extends share price losses amid Saudi-Russia oil disputes

The fall out between Saudi Arabia and Russia over oil supply has created more uncertainty for Singapore Airlines (SIA), as its share price fell as much as 3.05% in early trading on Monday 09 March.

The decline brings SIA’s share price to S$7.63 per share – a level it has not seen since early-2003.

Oil prices crashed over 30% on Monday

On Monday morning, US crude and Brent crude oil prices fell by a record 27% and 31% respectively. The price collapse came on the back of Saudi Arabia’s announcement on Sunday 08 March to raise oil production by two million barrels a day, and slash prices by between US$6 to US$8 per barrel.

This was the Kingdom’s response to Russia’s refusal in last Friday’s Vienna OPEC+ meeting to reduce oil output amid the worsening coronavirus outbreak, which has hit oil demand hard in recent weeks.

While oil price declines would usually benefit the share values of airlines, the oil price collapse on Monday is the opposite of what SIA had initially forecasted.

Last month, SIA had extended some of its fuel-hedging contracts to up to five years, on the prediction that oil prices would inflate with OPEC+ nations planning to cut production and renewed tensions between US and Iran.

SIA Group had also stated in its third quarter earnings for the 2019/2020 financial year that it had hedged 79% of its fuel requirements in MOPS at a weighted average price of US$76 for the fourth quarter.

The group had previously hedged fuel prices for an average length of 18 months to 24 months.

Furthermore, as James Teo, Senior Analyst, Asia Pacific Transportation, Bloomberg Intelligence, tells IG, lower fuel costs will help provide some relief to airlines whose fuel costs are unhedged, ‘but lower demand from COVID-19 is still the bigger problem’.

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SIA share price down nearly 12% in the last one month

This latest drop is in addition to the steep fall of 6.54% that the airline had suffered two weeks ago, following the United States’ first COVID-19 case ‘without a known origin’, and countries like New Zealand and Belarus reporting their first cases.

That was the biggest drop in share value for SIA since July 2019, when stocks had plunged nearly 5% during what was arguably the most contentious period of the US-China trade war.

This brings the stock’s total depreciation since late-January to roughly 14.5%. In mid-January - prior to the outbreak of the coronavirus, SIA shares were trading above S$9 per share.

The International Air Transport Association (IATA) had said last week that the reduced passenger traffic caused by COVID-19 is expected to result in a loss of US$29.3 billion in revenue for the global airline industry.

Globally, there are now more than 100,000 confirmed cases and over 3,300 reported deaths.

SIA’s share price could see more drops

With analysts viewing the price cuts by Saudi Arabia as a ‘market share grab’ and the start of a ‘price war’, oil prices could be set for more losses in the coming weeks.

‘The signal is Saudi Arabia is looking to open the spigots and fight for market share,’ said Matt Smith, director of commodity research at ClipperData, told CNN. ‘Saudi is rolling up its sleeves for a price war.’

Bob McNally at Rapidan Energy Group said that it is ‘very rare’ for a collapse in demand to ‘coincide with a supply surge’, telling The Financial Times that it is the most price-bearish crude combination since the early 1930s. He believes the price collapse has only ‘just begun’.

SIA Group is currently trading at S$7.72 a share as of 2.20pm on 09 March.

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