Analyzing the Decline in Oil Prices with ZEMA – Part 2

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In Part 1 of this blog, I discussed the aftermath of falling crude oil prices on the North American crude derivatives (RBOB gasoline and heating oil). Apart from the obvious conclusion that the decline of WTI and Brent was mirrored by the North American distillate benchmarks, I also showed that Brent crude oil plays a more important role than WTI in determining the prices of US petrochemicals. This is perhaps one of the outcomes of the gradual diminishing of geographical borders between regional commodity markets.

Globalization has made world markets more closely interconnected than ever. This translates into interdependency among nations, industries, and markets beyond mere geographic borders. A small shift in one market could create ripple effects in several other dependent markets. This is especially true in the crude oil market and the dependent economic sectors.

In the Part 2, I test the assumption that unexpected fluctuations in the price of crude oil (and consequentially, in the price of refined petroleum products) may affect the transportation companies’ profitability, and therefore, their stock prices. For this analysis, I’ve chosen the six largest publicly traded transportation companies from three different segments: Delta Airlines and United Airlines as a sample from airline companies, FedEx and UPS from shipping/mailing services, and Maersk and Evergreen Marine Corp. from containerized-freight and oil tanker shipping companies.

There should be a direct dependency between the price of petroleum products and the financial performance of transportation companies, as fuel is one of the main input expenses. For the last three years, jet fuel has been the largest operating expense account for Delta and United Airlines, amounting to almost one third of their total operating costs.[1],[2] Based on the 2013 financial statements of FedEx and UPS, jet fuel and gasoline was the third-largest operating expense after salaries and purchased transportation, accounting for up to 11% of the total expenses.[3],[4] Cost of fuel oil, which appears on the financial statement of Maersk and Evergreen as “bunker costs,” comprised 20% of total operating expenses.[5],[6] Moreover, low prices have promoted additional imports of crude and the massive storage of oil tankers, benefiting oil tanker companies.

Daily settle prices for each company’s stock from March 2012 until November 2014 were uploaded into ZEMA using Curve Portal and analyzed against five energy benchmarks: Brent and WTI crude, Gulf Coast Jet Fuel, European 3.5% Fuel Oil Barges FOB Rotterdam (as a benchmark for marine bunker fuel), and RBOB Gasoline. In Figure 1, you can see the stock prices of Delta Airlines (blue line), United Airlines (red line), FedEx (green line), UPS (purple line), Maersk (orange line), and Evergreen (cyan line) plotted on the graph alongside Brent crude oil (thick black line). All curves also have thin black regression lines plotted on top, showing their trends starting in October.

Transportation vs. Brent 1
Figure 1: Stock prices of UPS (NYSE), FedEx (NYSE), Delta Airlines (NYSE), United Airlines (NYSE), Maersk (CSE), and Evergreen (TWSE) and price of Brent crude oil (NYMEX), May-November 2014

Almost all of the companies’ stocks have a noticeable upward trend starting in October, when price for crude oil began steadily decreasing. For the last two months, the stock price of Delta Airlines went up by 7.7%, FedEx by 14%, UPS by 11.3%, and United Airlines by 13.5%. Surprisingly, there are no signs of a favorable effect of cheap crude for Maersk and Evergreen.

Figure 2 is a ZEMA Dashboard with five graphs showing a fast sliding correlation within a five-week period between each of the aforementioned companies (represented on the graph using dotted lines of the same colors) and each of the following commodities: Brent (solid black line), WTI (solid blue line), jet fuel (solid purple line), fuel oil (solid orange line), and RBOB Gasoline (solid green line). By the end of October correlation points of Delta Airlines, United Airlines, FedEx, and UPS have moved from a neutral zone to a medium-strong negative position. The behavior of correlation lines of Maersk and Evergreen is more discreet.

Dashboard 1
Figure 2: Sliding five-week correlation between stock prices of Delta Airlines, United Airlines, FedEx, UPS, Maersk, and Evergreen and price of Brent, WTI, Jet Fuel, Fuel Oil, and RBOB Gasoline, October-November 2014

In Figure 3, the table shows a long-term correlation (2.5-year window) and a short-term correlation (2.5-month window) between companies’ stock prices and the prices for petroleum benchmarks. For this correlation analysis carried out in ZEMA, commodities data was shifted by five days to create a one-week lag, assuming that petroleum products’ prices may have a delayed effect on the stock market.

Correlation table
Figure 3: Correlation between stock prices of Delta Airlines, United Airlines, FedEx, UPS, Maersk, and Evergreen and prices of Brent and WTI crude oil, Jet Fuel, Fuel Oil, and RBOB Gasoline

As the results show, there is almost no correlation between the prices of fuel or crude and the stock prices of transportation companies in the long run; however, for the months of September, October, and November of 2014 there is a medium-to-strong negative correlation for the majority of the companies. This shows that stock prices went in the opposite direction from those of fuel and crude. The results also show higher correlation of Delta, United, FedEx, and UPS with WTI rather than North Sea benchmark and other distillates. Surprisingly, there is almost no correlation for Evergreen, while prices of Maersk’s stock are positively correlated. The reason may be a diverse profile of the companies. For example, apart from the Shipping Services division, Maersk also includes Oil and Drilling divisions contributing almost 40% to the consolidated profit.

The absence of correlation in the long run can be explained—as fuel price fluctuation is one of the most significant market risks for the transportation industry, companies try to minimize the effect by actively using hedging strategies such as entering futures and options markets or applying fuel surcharges to the prices. And if changes in fuel price would not be expected to materially affect earnings over the long run, operating income in the short term can still be affected should the spot price of fuel suddenly change by a significant amount.

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[1] “Delta Airlines 2013 Annual Report,” Delta: SEC Filings, accessed November 14, 2014,

[2] “2013 United Continental Holdings Annual Report,” United Airlines: Investor Relations: Annual Reports, accessed November 14, 2014,

[3] “UPS 2013 Annual Report,” UPS: Investor Relations, accessed November 14, 2014,

[4] “FedEx 2013 Annual Report,” FedEx: Financial Information, accessed November 14, 2014,

[5] “A.P. Møller – Mærsk A/S Annual Report 2013,” Maersk: Financial Reports, February 27, 2014, accessed November 14, 2014,

[6] “Evergreen Marine Corp. 2013 Consolidated Financial Statements,” Evergreen Marine Corp.: Financial Reports, accessed November 14, 2014,

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