What happened
Shares of cruise line operators Royal Caribbean (NYSE: RCL), Norwegian Cruise Line Holdings (NYSE: NCLH), and Carnival (NYSE: CCL) all jumped in early trading Wednesday.
As of 12:36 p.m. ET, Royal Caribbean stock was up a strong 6.5%, Norwegian was showing a 9.6% gain, and Carnival had actually put up a double-digit percentage gain -- 10.1%.
Image source: Getty Images.
So what
Cruise line stocks fell out of bed on Monday, and continued rolling lower Tuesday, for one simple reason: oil.
Over the weekend, President Joe Biden floated the idea that the U.S. could ban imports of Russian oil, and crude prices immediately spiked from the already-high levels they had hit due to supply-demand imbalances and geopolitical turmoil. They rose 10% from Friday's close, a shift that has natural implications for cruise companies, which use diesel to power their ships. Fuel is one of the biggest operating costs for such companies. At Carnival, for example, it accounts for anywhere from 12% to 19.5% of operating expenditures -- as much as $2 billion per year. On Tuesday, Biden followed through and banned U.S. imports of Russian oil, natural gas, and coal.
But what goes up can also go down, and on Wednesday, it was oil prices that were sliding. According to the latest data from OilPrice.com, in early afternoon trading, the cost of a barrel of U.S. benchmark West Texas Intermediate crude was down by about 6.3%, while Brent crude was down by about 7%.
Now what
Mind you, this sudden drop in the price of oil may be only temporary. It may not stick, and until oil consumers know whether it will stick, cruise companies might not see much improvement in the price of the ultra-low sulfur diesel fuel they use to power their cruise ships.
Los Angeles Ultra-Low Sulfur No 2 Diesel Spot Price data by YCharts.
Regardless, cruise stock investors are enjoying the good news while it lasts. Oil prices have just shown that they are not going only in one direction. That reassurance helps explain why cruise stocks are sailing higher.
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Rich Smith has no position in any of the stocks mentioned. The Motley Fool recommends Carnival. The Motley Fool has a disclosure policy.
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