With oil prices hitting extremely low numbers (numbers we haven’t seen in a decade) we need to actually think about what is happening here and if oil prices will stay at these levels for a while. If oil will stay this low, there are many different industries that will benefit in a big way – and that means we should buy-in to their stocks now.
What Is Driving Down The Price Of Oil?
There are several theories about what is driving down the price of oil, but the real answer is the decline in oil prices is due to a perfect storm of a number of things. There simply isn’t a vast conspiracy from Saudia Arabia – as cool as it may sounds. Saudi arabia really only counts as about 5% of the US oil consumption – so that should not have this dramatic of an affect on prices. So what is causing the decline in oil prices then?
- The whole world is weakening – most world economies are struggling (aside from the US)
- Oil is priced in dollars which makes it more expensive for Europe and other countries.
- There is a 71% increase in US oil production – the US produced 8.6 million barrels per day.
Don’t get too hung-up to pin the decline in oil on one place. The US has been building up a nice stock pile of oil for several years.
Several Risk Factors that Would Jack-Up the Price Of Oil Never Happened
- Terrorism in Iraq
- Sanctions in Russia
Nearly everyone seems long oil right now. Oil in the mid $70s right now.
The US has it’s own fracking technology that is low-cost production.
Stocks That Benefit From Lower Oil Prices
There are many sectors that benefit from lower energy and oil prices and some that are attractive investments right now.
American Airlines (AAL)
Airlines benefit tremendously from even a slight decline in crude oil prices. With the drastic decline in the price of oil, look for all airline stocks to soar. Of all airlines you could buy, American Airlines would be your best bet as they have the best management and a great balance sheet. Estimates on the street have the 12-month price target for American Airlines set to $49 (currently trading at $42) which represents a nearly 17% jump. However, I believe that the stock will go higher simply because with oil prices in the cellar, the doors open up for the Airlines to add more flights and with more planes in the air, the more money they can make.
Other Stocks That Will Benefit From Lower Oil Prices
- Delta Air
- Allegiant Air
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