Oil price slammed: 5 ASX shares to avoid

For most Australians, rising oil prices are a given.

From the days of no seat belts in cars, bowser prices flew through 70 cents a litre towards $2, and Aussies assumed rising oil prices were just a fact of life.

Indeed, more cars on the road, coupled with a finite amount of resources in the ground, meant petrol price increases were unavoidable.

However, overnight, oil prices crashed below $US30 a barrel – a price not seen since December 2003, according to CNN Money. For comparison, at the start of 2014, oil prices were riding well above $US100 a barrel.

Data sourced from Australian Institute of Petroleum

Data sourced from Australian Institute of Petroleum

According to the Australian Institute of Petroleum, the national average for a litre of unleaded petrol in 2003 was 90.4 cents. At the time, the Australian dollar fetched anywhere between US 56 cents and US 74 cents.

The lower oil price environment is a classic case of oversupply in the global market. The USA’s shale oil boom coupled with a constant flow from the Middle East means a stabilisation of prices may not be seen anytime soon.

In fact, just yesterday, bearish analysts from UK bank Standard Chartered joined their counterparts from Goldman Sachs, RBS and Morgan Stanley in suggesting oil prices could fall even further in 2016 – to $US 10 a barrel!

Undoubtedly, calls for lower oil prices are great news for your everyday consumer, but not everyone is a winner from lower prices.

Indeed, sharemarket investors have watched on helplessly as the share prices of energy companies like BHP Billiton Limited (ASX: BHP), Oil Search Limited (ASX: OSH), Woodside Petroleum Limited (ASX: WPL), Santos Ltd (ASX: STO) and Beach Energy Ltd (ASX: BPT) plummeted in price.

Despite their blue-chip status, BHP and Woodside are down 47% and 23% in the past year. Meanwhile, Oil Search, Santos and Beach are down 12%, 58% and 59%, respectively.

Foolish takeaway

Oil will continue to be used for many years, but until the forces of supply and demand find their equilibrium prices will continue to fall. Therefore, my advice is to keep oil producers’ shares out of your investment portfolio, at least for the foreseeable future.


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Motley Fool writer/analyst Owen Raszkiewicz has no position in any stocks mentioned.

Owen welcomes your feedback on Google plus (see below), LinkedIn or you can follow him on Twitter @ASXinvest.

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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