What happened
American Airlines (AAL 0.94%) stock is up 5.4% as of 12:50 p.m. EST -- apparently on no news whatsoever. What's behind the surging stock price?
I have a hunch: It's oil prices.
AA's profits have been grounded for some time now, but could gain altitude in Q4 -- if oil prices permit. Image source: Getty Images.
So what
Government reports show that domestic oil supplies rose for the seventh week in a row today, with gasoline stockpiles also rising. The news put continued pressure on oil prices, with U.S. benchmark West Texas Intermediate crude falling 1.1% to $61.53 per barrel in early trading Wednesday.
Now here's why this is important to American Airlines. Last month, American Airlines reported subpar earnings -- which it blamed on a 37.6% increase in the average cost of jet-fuel bought for its airplanes. Although the company isn't yet losing money -- its CEO has famously promised investors that his company will never lose money again -- the higher oil prices go, the more at-risk that promise becomes.
The fact that oil prices appear to have hit a ceiling and rebounded lower is therefore good news for American Airlines.
Now what
Analysts who follow the company expect American Airlines to resume growing earnings this quarter, projecting $1.03 per share in profits, up from $0.95 in last year's Q4. With fuel prices moderating, the chances American Airlines will meet (or beat) that consensus estimate have markedly increased.
