In September 2006, I wrote a post about investing in the cruise line industry. In that post, I asserted that the price of fuel, which is one of the biggest expenses of cruise lines, is a key factor in the price movements of cruise line stocks. I said that there is an inverse relationship between the cost of fuel and the price of cruise line stocks. To review, I have reproduced the graph that I posted of Carnival Corporation (NYSE: CCL), which is represented by the blue line below. The red line is the U.S. Oil Fund ETF (AMEX: USO). USO is an exchange-traded fund that tracks the price of crude oil. Back in September, the price of oil was dropping in price. If you pay attention to what you're paying at the gas pump, then you are attuned to these movements in crude oil prices. As you can see in the graph, the price of oil was dropping, while the price of CCL was soaring.
Fast forward six months to today, and you will notice things have changed. I was recently at the gas pump, and noticed that regular gas costs over $3 per gallon for the first time in a while. (Note that I live in Silicon Valley, California.) Below is what that same graph of CCL vs. USO looks like today.
Do you see the inverse relationship? It might be a little hard to see in the chart, but USO reached a low of 42.56 on 1/18/07. Only one day later, on 1/19/07, the price of Carnival Corporation (CCL ) reached a peak of 52.73. Since January, these two charts have reversed course. Oil and gas are increasing in price, while the cruise lines have dropped in price. The North American cruise line industry includes Carnival Corporation, Royal Caribbean (NYSE:RCL), and Norwegian Cruise Lines.
To a lesser extent, the increase in oil prices affects the stock market as a whole as well. So, knowing this relationship is something that you can use to help guide your investments. At this time, I would predict that the cruise lines will drop in value until oil reverses course, or at least until oil prices start to stabilize.
Note: My posts about the cruise line industry are among the most popular posts here at PFStock. Many visitors were searching for information about how to get the shareholder onboard credit benefit offered to cruise line (Carnival Corporation and Royal Caribbean) stock holders. If this is what you are searching for, please read the details in my post about cruise line shareholder benefits for RCCL and Carnival stock holders.