Why Carnival, Royal Caribbean, and Norwegian Cruise Stocks All Popped Today

What happened

Cruise tourism stocks Carnival Corporation ( CCL 4.57% ) ( CUK 3.92% ), Royal Caribbean ( RCL 3.89% ), and Norwegian Cruise Line Holdings ( NCLH 4.57% ) all jumped in early trading Tuesday.

As of 10 a.m. ET, Royal Caribbean stock is up 4% and Carnival Corporation 4.1%, while Norwegian Cruise is leading the sector higher with a 5% gain.

Image source: Getty Images.

So what

Once again, oil is the primary reason.

Cruise line stocks got crushed early last week as oil prices spiked toward $130 a barrel. But as the price of oil has ebbed (West Texas Intermediate crude is down about $30 a barrel — or 24% — to $96 since last Tuesday), cruise line stocks have recovered steadily. Today, oil prices took yet another leg lower, with WTI prices falling 7% from Monday’s close, and the cost of Brent crude dropping 6.5%.  

This makes sense. Oil for fuel — specifically, ultra-low sulfur marine diesel — is one of the biggest costs cruise companies incur when running their operations, making up anywhere from 12% to 19.5% of operating expenditures. (Carnival, for example, pays as much as $2 billion per year for the stuff.) So if oil is getting cheaper, that’s good news for cruise line stocks.  

Additionally, as CNBC reported this morning, several airlines raised their revenue outlooks this morning, “saying air travel is rebounding from the earlier slump induced by the spread of the Covid omicron variant.” Because travelers must often fly to their ports before boarding for an ocean cruise, a rebound in airplane ticket demand may presage improved cruise vacation bookings as well.  

Now what

Don’t get too excited about cheaper oil prices, however, because they won’t necessarily — or quickly — translate into cheaper fuel costs at the company level. CNBC, for example, noted that jet fuel prices are still up 35% in just the first three months of this year. The situation seems similar with the per-gallon cost of marine diesel, which as you can see still costs a pretty penny.

Spot price per gallon for US Gulf Coast Ultra-Low Sulfur No 2 Diesel data by YCharts.

Long story short, cheaper oil should be good news for cruise line stocks like Carnival, Royal Caribbean, and Norwegian Cruise over the long term and if those lower prices stick. And for the time being, oil priced in the neighborhood of $95 a barrel is still about 30% more expensive than average prices over the past year.  

Don’t expect this to translate into better cruise line profits just yet.