Invest
What does the oil crash mean to investors?
Following a lack of demand for crude and an abundant supply, oil prices tumbled into negative territory, with sectors that usually take advantage facing a COVID-19 headwind, an industry expert has explained.
What does the oil crash mean to investors?
Following a lack of demand for crude and an abundant supply, oil prices tumbled into negative territory, with sectors that usually take advantage facing a COVID-19 headwind, an industry expert has explained.
According to JP Morgan’s global market strategist, Kerry Craig, the traditional winners from the low cost of crude oil are not benefiting due to a changing world.
“While sectors such as airlines, logistics and selected industrial (such as chemicals) traditionally benefit from low energy prices, they also face bigger challenges on the demand side of their businesses,” Mr Craig explained.
Olivia Engel, State Street’s chief investment officer, active quantitative equity, said some of these industries are actually suffering the most, mainly due to weak sentiment, as investors pull out their capital.
“In fact, the largest changes in overall attractiveness in stocks have mainly been caused by changes in market sentiment. The obvious segments – airlines, transport infrastructure, hotels, restaurants, luxury goods and automobiles – have suffered the most,” Ms Engel said.
“Until energy demand starts to improve, investors may choose to take a more cautious view on this sector. Much like other sectors, those companies that can survive during this period of pain stand to gain the most in a post-COVID world,” Mr Craig said.
How long will oil prices remain low?
Mr Craig explained that OPEC will likely rectify the situation, but the COVID-19-led evaporation of demand of oil will likely remain for some time.
“Even as/if virus containment measures ease in the coming weeks, the world is going to be awash in oil for some time – economies may be slow to get back up and running to a pace that would warrant a strong increase in demand, especially when it comes to international travel.”
The energy information administration is forecasting a drop in demand in multiples of what we saw during the financial crisis, which will likely lead to pressures on energy stocks until demand returns.
“In the meantime, energy stocks will come under further pressure, despite their already low valuations.”
“Companies in the upstream of the energy supply chain will face the greatest pressure. The US high-yield market and issuers from the energy sector will quickly experience dislocation – credit spreads have already widened considerably.”
While the current price of oil remains unsustainable as wells begin to shut down and OPEC is forced to reduce supply, State Street Global Markets’ senior multi-asset strategist, Daniel Gerard, agrees with Mr Craig’s prediction, although he suggests it could be lower for longer.
“Current conditions show that US oil production may just fill the gap that any OPEC+ cut may leave. This is exactly what has been happening for years. As OPEC supply fell, US supply took its place.
“This storage crisis is not going away for at least a few months, which means we will continue to see volatility with spot futures, and rolls. Barring a grand agreement from Saudi Arabia, Russia and Texas, which seems highly unlikely, current dynamics and low oil prices will persist. We see very low prices through the rest of 2020 at a minimum,” Mr Gerard concluded.
About the author
About the author
Stock market
2 big questions investors should ask as Australia reopens
Investors need to stop thinking about how to profit from the mineral sector’s struggles, and start looking at when the best time to ride the recovery will be. ...Read more
Stock market
Trading app popularity skyrockets as retail sector booms
In 2021, trading has never been easier for retail investors, meaning the number of users on trading applications has exploded to an all-time high. ...Read more
Stock market
ETF rush predicted to intensify
The Australian ETF sector advanced AU$6.3 billion in August to hit a new milestone, as its popularity among financial advisers soared. ...Read more
Stock market
The 6 unique Australian market affects that all active managers can exploit
The uniqueness of the Australian equities market is providing fund managers with an opportunity to essentially beat the market, new research has revealed. ...Read more
Stock market
‘Don’t believe the hype’: ASIC warns of risks for new market participants
ASIC has expressed concern that inexperienced or uninformed investors are putting their capital at unnecessary risk when tempted into the market by questionable marketing strategies from market promot...Read more
Stock market
How do you choose the best ETFs?
In recent years, exchange-traded funds have become an increasingly popular option among Aussie investors. ...Read more
Stock market
Lockdowns instigate a rise in new investors
Despite COVID-19 leaving individuals and businesses to face an uncertain future, retail investors’ appetites for shares have increased throughout the pandemic, a new report has found. ...Read more
Stock market
‘Code red for humanity’ a wake-up call for private and public investment
Retail investors that have been advocating for sustainable and ESG investing are hoping a new report released by the United Nations will serve as a wake-up call to the financial industry and governmen...Read more
APRA’s mortgage crackdown, the power of DeFi and last-minute tax tips
Listen now
What to expect as the end of lockdown looms? Will the Stage 2 tax cuts boost your tax return? Where should investors be looking as the economy reopens?
Listen now
Could property prices inflate by another 20%? What’s happening in recent dividend announcements? Did your fund fail the YFYS test?
Listen now
What does the NSW regional permit mean for property investors? Who really wins from the BHP-Woodside merger?
Listen now
Stock market
2 big questions investors should ask as Australia reopens
Investors need to stop thinking about how to profit from the mineral sector’s struggles, and start looking at when the best time to ride the recovery will be. ...Read more
Stock market
Trading app popularity skyrockets as retail sector booms
In 2021, trading has never been easier for retail investors, meaning the number of users on trading applications has exploded to an all-time high. ...Read more
Stock market
ETF rush predicted to intensify
The Australian ETF sector advanced AU$6.3 billion in August to hit a new milestone, as its popularity among financial advisers soared. ...Read more
Stock market
The 6 unique Australian market affects that all active managers can exploit
The uniqueness of the Australian equities market is providing fund managers with an opportunity to essentially beat the market, new research has revealed. ...Read more
Stock market
‘Don’t believe the hype’: ASIC warns of risks for new market participants
ASIC has expressed concern that inexperienced or uninformed investors are putting their capital at unnecessary risk when tempted into the market by questionable marketing strategies from market promot...Read more
Stock market
How do you choose the best ETFs?
In recent years, exchange-traded funds have become an increasingly popular option among Aussie investors. ...Read more
Stock market
Lockdowns instigate a rise in new investors
Despite COVID-19 leaving individuals and businesses to face an uncertain future, retail investors’ appetites for shares have increased throughout the pandemic, a new report has found. ...Read more
Stock market
‘Code red for humanity’ a wake-up call for private and public investment
Retail investors that have been advocating for sustainable and ESG investing are hoping a new report released by the United Nations will serve as a wake-up call to the financial industry and governmen...Read more
More articles
Website Notifications
Get notifications in real-time for staying up to date with content that matters to you.
