One of the biggest global issues right now is the falling price of crude oil. I think it is very important for us to know the implications that the low oil prices will have because it directly affects our money as consumers and investors.
As you can see in the graph, the crude oil crash has been very harsh. It's now going around $52.69 a barrel as of January 2, 2015. If you take a step back and remind yourselves that crude oil used to be priced at over $100 a barrel in July 2014, you will know that this is a serious matter.
The first negative implication of this is that there will be inevitable layoffs in the oil industry because less drilling will lead to a loss of jobs for oil workers. For example, American Eagle Energy announced that they would call off drilling entirely until oil prices rebound. This would also negatively affect the services around the drilling sites, such as restaurants, bars and construction. If the oil prices keep crashing, investors will lose more confidence in the oil-related businesses because this low oil price environment will significantly decrease the corporate profits. I expect that there will continue to be downward pressures on stocks like Suncor Energy (TSE: SU), Imperial Oil (TSE: IMO) and Husky Energy (TSE: HSE). Above all, the province of Alberta will take a direct hit.
But, we need to be aware of the positives because this actually makes the lives of consumers better. This global slump in the price of oil is leaving consumers with more cash in their pockets because we will spend less on gasoline, allowing us to purchase more and spend more on other items like groceries, travel and investments. So the low oil prices may actually stimulate the economy.Noh Review's Outlook
- Consumers will have more to spend on travel, boosting the sales of airlines. Also, the low oil price would significantly decrease the gas expenses from the airplanes. WestJet (TSE:WJA) may be worth a watch.
- Now would be a wise time to invest in stable Canadian banks that have large retail operations in the U.S. because the US economy will continue to improve with lower oil prices. A great example would be TD Bank (TSE: TD).
- The crashing of crude oil will not last forever as history tells us. Having said that, 2015 may actually be a good time to get into energy/oil stocks with a big discount. Suncor Energy (TSE: SU) with a consistent dividend yield of 3% seems to be an attractive choice.
- Detailed analysis on these companies will be provided in the next posts.
