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Oil Price Crash: Which shares win in 2016?

As investors will be all too aware it’s been an absolutely shocking year for oil shares.

One year ago things appeared bad enough with the oil price sinking through US$70 a barrel, however that level now looks like Nirvana considering a barrel of oil is fetching less than US$40 today!

The share price rout for oil producers has made it a painful year for shareholders in a number of high profile companies…

Woodside Petroleum Limited (ASX: WPL), Santos Ltd (ASX: STO) and Oil Search Limited (ASX: OSH) have fallen 30%, 58% and 23% over the course of calendar year 2015.

In contrast, the S&P/ASX 200 (Index: ^AXJO) (ASX: XJO) has slipped just 6%.

While these “fallen angels” certainly have the potential to bounce back – possibly substantially – if there is a recovery in the price of oil, there is also the possibility that oil is in a long-term bear market.

A better bet?

While low oil prices are bad news for oil producers and other companies with direct exposure to the industry such as oil service companies like MMA Offshore Ltd (ASX: MRM), there are winners from lower oil prices too…

Consider for example transport businesses Qantas Airways Limited (ASX: QAN) and Virgin Australia Holdings Ltd (ASX: VAH). These two companies are already showing signs of their bottom lines benefitting from oil being a significantly lower input expense.

Indeed, shares in Qantas are already up over 50% year to date. Virgin’s share price meanwhile has only gained 7%.

The significant relative underperformance of Virgin compared with its peer Qantas makes further analysis of this stock particularly compelling for investors who are seeking out stocks with the potential to outperform in 2016.

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Motley Fool contributor Tim McArthur has no position in any stocks mentioned. Unless otherwise noted, the author does not have a position in any stocks mentioned by the author in the comments below. The Motley Fool Australia has no position in any of the stocks mentioned. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

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