(<1 min read time)

In 1998, oil went from $10 a barrel to peak at $145 a barrel. It is now trading at around $40-$50 per barrel.

I have been asked on many occasions, "Cheaper oil means cheaper fuel which is great for our petrol bills but is it good for my investments?"

Simply put, over the medium to long term it generally is. Lower energy costs (fuel) for businesses will have the potential to reduce costs, increase profits and therefore provide businesses the funds to grow or to increase dividends to you as a shareholder.

Oil Drilling

Good news right?

There is one caveat. A large and quick price drop in oil will have the potential to provide an increased level of short term volatility in some share prices, something we have witnessed in share markets over the past couple of months.

One of the reasons is because companies which supply or are directly related to energy/fuel production such as Santos, Oilsearch etc, will drop in price as their businesses will suffer from the decreased oil price.

Another reason is that when you get a large swing in commodity prices (including oil), investors, being unsure of the effects, will become a little short term cautious.

Action this month:-

  • Become a better educated investor and read the below article from Dr Shane Oliver. It is a little technical, but is well worth the couple of minutes of your time.

Dr Shane Oliver - The Plunging Oil Price and What it Means

Have a great month.

Ben Law.