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Why Is No One Paying Attention To Oil Stocks Anymore?

Over the second half of 2014, we saw how the price of oil plunged dramatically:

Brent crude oil spot price

Brent Crude Oil Spot Price , data by YCharts

With that stunning collapse seen in the cart above, the share prices of many oil-related companies, such as Ezion (SGX: 5ME)Ezra Holdings Limited (SGX: 5DN), and Sembcorp Marine Ltd (SGX: S51), also fell.

Because of the rapid descent in the price of oil, there was a time – just a few months back – when it seemed like there was something to talk about daily regarding the oil and gas sector.

Will oil recover? Will it fall even lower? How badly will companies in the sector be affected? There were endless questions.

But today, most investors seem to have moved on with life and there’s a lot less attention being paid to the oil and gas sector. As a sign of the times, trading volume in Sembcorp Marine’s shares has dipped from an average of 5 million shares per day in December 2014 and January 2015 to only around 2 million shares per day in the current month.

This seems odd, especially when considering that the price of oil has yet to recover. In fact, the Brent Crude Oil Spot Price is now around 59, nearly half that of its 2014-peak of 115.

But, an understanding of why investors seem to have lost interest in the oil sector could perhaps be found from the psychology of two groups of investors who went through different experiences when the price of oil started its sharp decline.

The ones that got hurt

The first group of investors are the ones who were heavily invested in the oil and gas sector when the crisis hit. Now, they are licking their wounds and are furious and fearful at the sector for its volatility. They might even have made a mental note to never invest in oil stocks again.

The ones that escaped

The other group of investors are the ones that had been on the sidelines looking in without investing. So, in a sense, they escaped the crisis.

But now, seeing that they have made a good call by not investing in the sector, it may have reinforced their views that the industry is inherently volatile and not worth investing in at all. The fact that no one really knows where the price of oil might end up adds weight to their view.

All alone

Thus, what we end up with now is a situation where those who believed in the oil and gas sector and those who did not have both decided not to invest in the sector currently.

So therein lies an interesting thought: In order to be a successful contrarian investor, is it not true that we have to be greedy when others are fearful? Given the lack of attention on oil stocks now partly as a result of fear, is it time for us to be greedy? That’s also an interesting question to ponder.

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The information provided is for general information purposes only and is not intended to be personalised investment or financial advice. Motley Fool Singapore writer Stanley Lim does not own any company mentioned above.