What The Oil Collapse Could Mean For Related Stocks Going Forward
When oil prices slumped on the 20th of April, eventually to a deeply negative point that had never been seen before, the financial world was rocked. This price shock is unlikely to be the only fall in oil prices in the coming weeks and months, as demand will keep falling due to lockdown.
The inelastic supply also means that production can’t react quickly enough. Here’s what this – and potential future price shocks – could mean for your stocks.
The Energy Sector
The energy sector is facing a lot of harm at the moment, as the crisis has meant that thousands of workplaces are going unpowered.
This fall in the price of oil won’t exactly boost confidence in the sector either, as it is yet another sign of continued instability coming from the COVID-19 crisis.
The longer the lockdown continues, the less confident investors are going to be and the lower that share prices in energy companies are likely to plunge. In the short term, investing in energy is unwise since the sector is highly vulnerable to the current situation.
One interesting trend through the oil price fall was the relative lack of response in the price of petroleum shares. BP fell by around a third of a percent and, whilst Shell faced more of an impact, it was much less severe than the overall oil price change.
In coming months, as oil prices for June and July continue to get cheaper, fuel companies such as BP and Shell are likely to see a per unit increase in their profits.
Oil prices are only going down, and there is no guarantee that the price of fuel will follow. Once lockdown loosens, people will find themselves in need of fuel once more, and the vastly improved profit margins could make these companies attractive prospects.
What’s The Best Way Through The Price Shock?
Both energy companies and the petroleum sector are likely to take a short term hit, due to non-existent demand for the lockdown period, but as they both qualify as vital infrastructure, no government will allow them to fail.
They could yet prove to be prudent investments as their value will likely skyrocket after the lockdown ends in a few months time, making them a good long-term option.