While investors in oil and gas shares are for the most part faced with the prospect of significant losses on account of the plunge in oil prices, there does appear to be some opportunities to profit from the weak oil price.
Firstly, the bottom of the cycle will inevitably lead to merger and acquisition (M&A) activity which can benefit both shareholders of acquired companies and shareholders in companies doing the acquiring by creating the opportunity to snap up assets at appealing prices. A recent example has been Woodside Petroleum Limited's (ASX: WPL) play for Oil Search Limited (ASX: OSH).
Secondly, another sector that stands to benefit from the turmoil in oil markets is the transportation sector. Given the significant expenditure of transport companies on fuel, lower oil prices and hence lower fuel prices can lead to a big saving in fuel expense.
Qantas Airways Limited (ASX: QAN) is set to be one of the major beneficiaries. The recent full year results showed a 3% increase in revenues, but a turnaround in underlying profit before tax to $975 million thanks to significant savings on fuel costs of $597 million.
The market is certainly alert to the tailwind of lower fuel prices which is benefiting airline companies such as Qantas, Virgin Australia Holdings Ltd (ASX: VAH) and Regional Express Holdings Ltd (ASX: REX). Over the past 12 months all three have out-performed the S&P/ASX 200 (Index: ^AXJO) (ASX: XJO) with gains of 133%, 14% and 6% respectively. In comparison, the index is down around 7%.
While Qantas' shares have already seen a huge rally, depending upon both the near-term and long-term actual oil price there could still be further gains in store for the stock on the back of further gains in earnings.
