The oil industry is experiencing its deepest downturn since the 1990s: the price of a barrel of oil has fallen by more than 70 percent since June 2014, and that’s affecting oil companies.
Their earnings are down, so they’re cutting back on exploration and production. Many have gone bankrupt, and an estimated 250,000 oil workers have lost their jobs. Globally, whole economies are impacted, such as the Ukraine, which was relying on a now canceled 10 billion dollar Chevron project to help stimulate its troubled economy.
When are oil prices likely to recover? Many say not to expect a recovery any time soon. Oil production is not declining fast enough in the US and other countries to drive up prices and OPEC no longer seems to have the clout it once had. So, it could be years before prices return to $90 or $100 a barrel the norm over the past decade. So what does that mean for you as a consumer?
Gasoline, heating oil and natural gas prices have fallen. Airline and shipping costs may follow. That should mean more money in your pocket and benefits for the economy.
According to the International Monetary Fund, a 10 percent decline in the oil price is associated with around a 0.2 percent increase in global Gross Domestic Product as consumers spend their gains, but this has not materialized yet. On the downside, the financial markets are rattled and that can hurt your portfolio.
In times like these, it’s important to remember that investing is about taking the appropriate view for your particular time horizon. And if you’re saving for a distant retirement, that means adopting a long term perspective. Arguably, this may represent the best single opportunity to invest in oil in more than 20 years, if you know where to look and what to buy.
This can be a complex undertaking. There are many ways to go, including purchasing oil stocks and/or buying index funds that track oil investment companies or the spot price of oil.
Your advisor, who knows your financial situation, is best able to advise you on how (and whether) to invest in oil.