If you drive a gas powered automobile, I'm willing to bet that your recent visits to the pump were pleasantly surprising. Crude oil has dropped nearly 20 percent over the last few months and reached a 27-month low on Wednesday night of $80.52 a barrel. A good portion of this recent pullback in oil prices can be attributed to the slow demand growth in Europe and China. Ample global oil supplies and OPEC's reluctance to cut back on production have also caused the price of crude to plunge as of late. From exploratory wells, to equipment manufacturers, to offshore drilling rigs, nearly every player in the oil industry has experienced some recent downward pressure on their stock prices. What does all this mean for you? Essentially an entire sector of the economy, and likely a portion of an investor's portfolio, has taken a hit.
There are two things I'd like to point out if this has you worried. First, it is very likely that the price of oil is not going to stay this low forever. The price of crude oil fluctuates over the years just as any other major commodity would. Ultimately, crude oil is a finite resource and as that scarcity becomes more apparent over time, the price of oil should begin to rise. Keeping this in mind leads me to my second point, which is that this recent pullback may offer some attractive investment opportunities for certain investors. Although prices are likely to remain volatile in the short-term, it may make sense for an investor to make small purchases in the oil industry if prices continue their downward trend. This strategy could potentially benefit the investor once an upward trend in prices re-emerges. As with any investment, there is no guarantee of profit, and it is important for you to discuss this strategy with your advisor to see if it aligns with your particular risk tolerance and investment goals. Feel free to contact me if you would like to discuss this topic further.
Angelo A. Costanza, Financial Advisor
(This article contains the current opinions of the author but not necessarily those of Brighton Securities Corp. The author's opinions are subject to change without notice. This blog post is for informational purposes only. Forecasts, estimates, and certain information contained herein should not be considered as investment advice or a recommendation of any particular security, strategy or investment product. References to specific securities and their issuers are for illustrative purposes only and are not intended and should not be interpreted as recommendations to purchase or sell such securities).