Initial reaction to a failure by OPEC nations to reach agreement on an oil output freeze was not unexpected. Oil prices slid with Brent crude futures off nearly 7% then recovering to $41.80 per barrel early Monday morning. Benchmark U.S. crude was down 3.62% to $38.90 per barrel.
Short-term expectations were for lower investor confidence as Saudi Arabia threatens to boost output following the collapse of the talks in Doha.
Doom And Gloom Or Not
As The Wall Street Journal noted, the “near-term picture is a mess.” Iran will likely continue to increase oil output to make up for years of sanctions. Iraq and Nigeria will add to the mix as will Libya.
The unpredictability of exporters’ output is also working in oil bulls’ favor. A workers’ strike in Kuwait has cut output by 60%. According to Barclays, however, the strike will likely only have a lasting effect if it lasts more than a week.
Common sense would indicate that cheap oil is helpful to airlines, makers of large cars and anyone who ships goods since that could now be done less expensively.
Those on the losing end would include companies involved in renewable energy and makers of electric or hybrid vehicles.
Conventional wisdom may not match reality this time around. Fewer power plants use oil. Consumers are saving more than they are spending. More investment in solar and wind means those segments are not as threatened by low oil prices as conventional wisdom would dictate.
Most Affected Stocks
How companies are affected by low oil prices and/or instability is difficult to predict. Which companies are most affected is a little more apparent.
Oil companies involved in exploration and production will be hit hardest by low oil prices. These include Transocean Ltd. (NYSE:RIGB), Diamond Offshore Drilling Inc. (NYSE:DOD) and Anadarko Petroleum Corp. (NYSE:APCD) to name a few.
For more see: 7 Oil Stocks To Dump From Your Portfolio
Industrial makers of steel, machinery and big equipment will also be greatly affected by low oil prices. These include United States Steel Corp. (NYSE:XA), Caterpillar Inc. (NYSE:CATC), Halliburton Co. (NYSE:HALF) and others.
For more check out: 6 Airline Stocks Worth Considering
Although low gas prices haven’t driven consumers to spend as much of their gas savings as conventional wisdom would dictate, some companies in retail consumer services have done well including Tuesday Morning Corp. (NASDAQ:TUESB), Fred’s Inc. (NASDAQ:FREDC) and Dollar Tree Inc. (NASDAQ:DLTRD).
The Energy Long Game
Hardy souls want to know what to own in the energy sector for when prices rebound. InvestorPlace listed its favorites in the buy and hold segment of the energy sector, based on what it called a long-term (10 years or so) outlook.