The Price of Oil and Q2 Reports

10 Monday Aug 2015

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There are a number of earnings reports coming out this week and with oil ending today below $45 I decided to discuss the potential impact of the price of oil on some of the companies releasing their Q2 2015 reports.

Recently the price of oil has crashed with a 52-week high of $93.34 to a 52-week low of $43.35; oil has dropped 22.70% in 2015 alone.  This has caused some obvious losers like oil and natural gas exploration companies but what about the not so obvious winners?  In Q1 2015 the average price of WTI crude was $48.54 this helped companies like Air Canada post record breaking profits.

Statista

One of the driving forces behind their outstanding quarter was the drop in the price of oil.  In Q1 2014 the cost of aircraft fuel was approximately 25% of total operating expenses of CAD$3.127 billion.  In Q1 2015 the cost of aircraft fuel was approximately 19% of total operating expenses of CAD$3.049 billion.

Q1 2015 is in gray Q1 2014 is in white (dollar amounts in Canadian Dollars)
According to the chart above the only operating expense that dropped significantly was Aircraft fuel decreasing by CAD$201 million a significant contributor to their CAD$78 million total operating expense improvement.
In Q2 2015 the average price of oil increased to $57.84 or an almost $10 increase.  This is important to keep in mind that while oil has been significantly down this year one should not expect the same savings on the price of fuel in Q2 2015 that we saw in Q1 2015.
I still believe that the price of oil has a long way to go before we see the bottom, with Iran potentially coming into the marketplace nobody knows in six months what the surplus of oil and gasoline is going to be.  For now lets all look forward to saving at the pump and seeing companies with high fuel costs post significant decrease in operating costs.
  • Industries with high fuel costs
    • Airlines
    • Waste Management
    • Transportation
    • Etc.

Daily News Breakdown 8/8/2015

08 Saturday Aug 2015

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  • Apple’s Fall Unveiling

Buzzfeed reported that on September 9, 2015 Apple’s (AAPL) will host its annual fall unveiling of new products.  While this date has not been confirmed by Apple Buzzfeed cited sources familiar with Apple.  CNBC reported that a new iPhone, Apple TV, and possibly an iPad Pro were to be announced.  If these are the only new products that Apple is releasing I believe this should be cause for concern.  Since Steve Jobs died Apple has not come out with a single revolutionary product and has not conquered any new markets.  The Apple Watch was, in my opinion, a testament of how Apple no longer sets the trends but rather follows them.

  • Verizon Announces New Phone Plans

Verizon recently announced they will no longer be offering the option to subsidize a phone in return for signing a two-year contract.  Under the new plan options the consumer pays $20 per month per smartphone line and must choose between one of four data packages.

  1. $30/month for 1GB of shareable data
  2. $45/month for 3GB of shareable data
  3. $60/month for 6GB of shareable data
  4. $80/month for 12GB of shareable data

This announcement is a clear move to combat attacks by rival T-Mobile who made a similar move two years ago.

  • China’s July Export Numbers Disappoint

China’s July export numbers added to China’s continuing economic troubles falling 8.3% versus the estimated 1%.  The decline in exports was led by demand from Japan falling 13%, the European Union 12.3%, and the United States 1.3%.  The common consensus surrounding numbers that come out of China is they are generally, at least to some degree, falsified.  This lends the question is the Chinese economy in much worse shape than China is letting on?

Daily News Breakdown 8/7/2015

08 Saturday Aug 2015

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  • Oil:
http://data.cnbc.com/quotes/%40CL.1
               Oil ended down $0.79 today for a final price of $43.75 or 1.77% below Thursday’s closing price.  The 1.77% drop was due to mounting concerns over a growing surplus in fuel as summer comes to a close.  In addition six oil rigs were added this week by United States energy firms for the third straight weekly increase.  This is despite the massive slump in oil prices driven by Saudi Arabia and the United States refusing to cut production as well as Iran’s potential entrance into the marketplace as international sanctions may be lifted.
  • Gold:
http://data.cnbc.com/quotes/%40GC.1/tab/2
Gold prices rose above $1,090 again to end at $1,093.30.  The brief, 0.37% rise was due to a less than expected United States jobs number.
  • United States July Jobs Report:
In July 2015 the United States economy added 215,000 jobs.  The majority of the increase came from the retail trade, health care, professional and technical services, and financial services sectors.  While this jobs report put the official unemployment rate at 5.3%, a seven year low, it still missed the analyst expectations of 225,000 jobs.  With that said, the miss of 10,000 jobs is minimal and shows that the economy is still on track.
  • Greece Migrant Crisis:
The situation of refugees from the Middle East and Africa coming to Greece has been declared “total chaos” by the UN refugee agency UNHCR.  With the economic crisis happening in Greece currently they cannot begin to deal with the 50,000 refugees that came to Greece in July of 2015.  This is just another nail in the coffin for the Greek government as the rest of Europe has balked at the thought of helping countries like Greece and Italy deal with the humanitarian crisis at the doorsteps of Europe.
  • Brazil’s Inflation Crisis:
With electricity costs rising inflation in Brazil has hit a 12-year high of 9.56% and with the International Monetary Fund predicting a 1.5% retraction in the Brazilian economy this year things are not looking very bright for the socialist country.  Adding to the countries hardships is the debt reduction plan consisting of cutting government spending and increasing taxes.
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