No matter what industry you decide to invest it, one thing is for sure, change is constant. If you look at the oil industry, oil prices have been in a state of decline in recent years. What happens in this situation is that there can be a correlation between the price of oil and the prices of oil company stocks. They can both rise or fall depending on the price of a barrel.
Oil prices have been in decline due to a comparatively strong U.S. dollar and weak economies in China and Europe. But the primary force behind falling prices is over supply. As a result, the combination of high surplus and low demand sent oil prices plummeting.
If you’re investing in this commodity, you can expect the market to eventually rebalance itself. But the process may take years before prices fully recover.
However, the downturn in oil prices has seen many other energy-intensive industries like airlines thrive. Further, lower prices have also made economies that depend on oil imports become stronger (as a result of lower importing bills).
Publicly traded large energy companies should be able to weather the storm. They will do this by cutting capital expenditure (they have already done a lot of this). However, this won’t do much to appease investors who will look to sell quickly.
But if you’re new to the game, there is no time like the present to start buying.
If you look at the history of oil prices, they dip and bounce right back. There was a slump in prices in the late 90s due to economic instability in Asia. At that time, OPEC curtailed production rates to get the prices back up. However, we have yet to see this happen at this juncture.
In the short-term, it might be a good option to look at other investment opportunities. One option is to seek out countries that are benefitting most from low oil prices. For example, the trade deficit in Japan is healing as a result of cheaper oil. Further, if you look at India, the economy is growing rapidly partly due to the lower cost of oil.
As a result, investors can also spread their investments and develop strategies across a changing market landscape. This will enable both beginners and veterans to cushion themselves when a particular commodity takes a hit, at least for the time being.