Why Cheap Oil Is Good For Us

Never mind your oil shares, look to the wider picture!

| More on:

The content of this article was relevant at the time of publishing. Circumstances change continuously and caution should therefore be exercised when relying upon any content contained within this article.

When investing, your capital is at risk. The value of your investments can go down as well as up and you may get back less than you put in.

Read More

The content of this article is provided for information purposes only and is not intended to be, nor does it constitute, any form of personal advice. Investments in a currency other than sterling are exposed to currency exchange risk. Currency exchange rates are constantly changing, which may affect the value of the investment in sterling terms. You could lose money in sterling even if the stock price rises in the currency of origin. Stocks listed on overseas exchanges may be subject to additional dealing and exchange rate charges, and may have other tax implications, and may not provide the same, or any, regulatory protection as in the UK.

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More.

You know, I’m getting a bit sick of listening to investors whining about the price of oil.

Sure, its bad news for those who own shares that are plummeting as a result (and I have some Premier Oil shares for my sins), but the rest of the economic world is benefiting greatly from this prolonged period of cheap energy supplies.

And though the UK has plenty of oil production of its own, we’re still a net importer of the stuff, and cheaper just has to be better overall.

In fact, in an interview with the BBC, deputy Bank of England (BoE) governor Dr Ben Broadbent has said the fall has been a “net good” for the UK economy, with real wages having risen 7% over the past couple of years — the fastest growth rate in 15 years. According to Dr Broadbent, and what should really be quite obvious to most of us, cheap oil has helped keep prices down across the economy and has provided a boost to consumption.

Recession receding

The BoE has cut its economic growth forecast for this year to 2.2%, from the 2.5% it was predicting in November, but that’s still a long way from the recession that is looking increasingly distant in the rear-view mirror — and we’d surely be seeing a lower figure had oil prices not considerably weakened.

And what helps us in the UK helps the rest of Europe even more. The eurozone is finally away from recession and back to economic growth — very modest, and still a victim of the fundamental mistake that is the single currency in the first place (though that’s perhaps for another day), but it’s progress nonetheless and it’s been helped by cheap oil.

And what about the Chinese slowdown that we’re all supposed to be so scared of? Well, cheaper oil is going to help that net importer too, and should soften the blow of slowing economic growth. (It’s easy to blame sluggish Chinese demand for the fall, but the reality is that it’s been driven by over-production more than anything.)

What does that mean for UK investors? Well, for me it’s another sign that we’re in for a continuation of the stock market progress that has led shares to beat other forms of investment hands down for more than a century, and I really can’t see the current pessimism lasting for much longer — and in another decade or so’s time, the oil-led blips will barely register on the long-term chart of the FTSE 100.

What shares?

Individual shares? Well, those that benefit directly from increased consumption should benefit the most, so perhaps it’s time to get into the retail sector? And maybe the housebuilding sector, which is still looking cheap to me. And the better financials too, like Lloyds Banking Group, Barclays, and the FTSE 100’s top insurers?

There are plenty of companies benefiting from cheap oil — but the irony is, it might take an oil recovery before investors can put aside their irrational fears and make the most of it.

Should you invest, the value of your investment may rise or fall and your capital is at risk. Before investing, your individual circumstances should be assessed. Consider taking independent financial advice.

Alan Oscroft owns shares in Premier Oil and Lloyds Banking Group. The Motley Fool UK has recommended Barclays. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.

More on Investing Articles

Investing Articles

1 FTSE dividend stock I’d put 100% of my money into for passive income!

If I could invest in just one stock to generate a regular passive income stream, I'd choose this FTSE 100…

Read more »

Young mixed-race woman jumping for joy in a park with confetti falling around her
Investing Articles

Forecasts are down, but I see a bright future for FTSE 100 dividend stocks

Cash forecasts for UK dividend stocks are falling... time to panic! Actually, no. I reckon the future has never looked…

Read more »

Young female analyst working at her desk in the office
Investing Articles

Down 13% in April, AIM stock YouGov now looks like a top-notch bargain

YouGov is an AIM stock that has fallen into potential bargain territory. Its vast quantity of data sets it up…

Read more »

Young Asian man drinking coffee at home and looking at his phone
Investing Articles

Beating the S&P 500? I’d buy this FTSE 250 stock for my Stocks and Shares ISA

Beating the S&P 500's tricky, but Paul Summers is optimistic on this FTSE 250 stock's ability to deliver based on…

Read more »

Passive and Active: text from letters of the wooden alphabet on a green chalk board
Investing Articles

2 spectacular passive income stocks I’d feel confident going all in on

While it's true that diversification is key when it comes to safe and reliable investing, these two passive income stocks…

Read more »

Investing Articles

The easyJet share price is taking off. I think it could soar!

The easyJet share price is having a very good day. Paul Summers takes a look at the latest trading update…

Read more »

Young mixed-race woman jumping for joy in a park with confetti falling around her
Investing Articles

9 stocks that Fools have been buying!

Our Foolish freelancers are putting their money where their mouths are and buying these stocks in recent weeks.

Read more »

Three signposts pointing in different directions, with 'Buy' 'Sell' and 'Hold' on
Investing Articles

As the Rentokil share price dips on Q1 news, I ask if it’s time to buy

The Rentokil Initial share price has disappointed investors in the past 12 months. Could this be the year we get…

Read more »