One of the biggest news stories outside the current coronavirus pandemic last week was the collapse of talks between the oil-producing cartel of countries known as OPEC and Russia.
Of course, this story would have been big news if the stock market wasn’t already tanking. But it mostly flew under the radar as everyday Australians have bigger fish to fry right now.
But it is still significant. The price of crude oil had its biggest one-day collapse since the early 1990s as a result – plummeting around 30% to US$30 a barrel. Today, it remains around that mark at US$28.98 a barrel (Brent).
But according to reporting in the Australian Financial Review (AFR), we could be seeing oil at US$10 a barrel before too long. The AFR quotes London-based FACTS Global Energy as stating:
“Prices in the $US20s a barrel for Brent are already looking almost certain, and the prospect of single-figure prices – last seen in 1998 – is now pretty inevitable in the coming months unless there are signs of an end to the current stand-off between Saudi Arabia and Russia.”
What would US$10 oil prices mean for ASX shares?
Well, as you would imagine, this scenario would be disastrous for ASX oil producers like Woodside Petroleum Limited (ASX: WPL), Beach Energy Ltd (ASX: BPT) and Oil Search Limited (ASX: OSH). These companies have already seen their share prices tank to decade-lows in many cases, and any further plunges in crude prices would no doubt put extreme pressure on their already strained balance sheets.
But any company that’s not directly involved with selling oil-based products would actually benefit enormously from US$10 oil. Just think of embattled airline Qantas Airways Limited (ASX: QAN). One of its major costs is fuel, so this will no doubt smooth Qantas’ woes at the current time.
Almost every other ASX company would also indirectly benefit from cheaper oil. The cost of running Woolworths Group Ltd (ASX: WOW) supply trucks will fall. The cost of shipping TVs to JB Hi-Fi Limited (ASX: JBH) will drop. The cost of running equipment in Rio Tinto Limited (ASX: RIO)’s mines will go down.
You get the idea.
And most of all, cheaper fuel at the petrol pump will leave more cash in most Australians’ pockets to spend on other things, which will be a much-needed boost to the economy.
Like most things, cheaper oil creates both winners and losers. Be prepared for that when it comes to your ASX portfolio!
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As of 17/3/2020
Motley Fool contributor Sebastian Bowen has no position in any of the stocks mentioned. 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 Scott Phillips.