Could the Oil Price Drop Be a Good Thing?


UK accountancy firm, Moore Stephens is releasing a report today focusing on UK oil and gas businesses which became insolvent this year.

“There was a sharp drop in the oil price during the financial crisis, but the sense that oil prices could be depressed for some time is much more widespread this time around,” said Jeremy Willmont, a partner at Moore Stephens, addressing what could possibly be fuelling these insolvencies.

So, what is actually happening?

The price of Brent fell by $1.83 to $61.85 a barrel, hitting lows last seen in July 2009. Meanwhile, US crude was down $2.14 to $57.81 a barrel, its weakest since May 2009.

This kind of market situation is raising concerns about capital investments in the long run. It is fully justified to consider that the current oil price crash may be a bad thing for oil stocks and investments in the long term.

However, if we take a look at it other way around, this might not necessarily be true. Lower oil prices may create more dependence on oil and therefore make the future for stock prices brighter. It is surely possible that both oil prices and oil stocks rise in the near future, but not in the long run. Keeping in mind that companies and nations are becoming more and more dependent on natural gas and oil, mainly due to the cheap supplies, higher prices will not affect the production. The longer oil prices stay at the lower level, the greater demand will be. If we look at this in the long term, the current drops might be a good thing for both oil prices and oil company stocks.

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