2 Quick Lessons from the 2014 Oil Price Crash

It’s been about a year since the price of oil nose-dived from more than US$100 per barrel to around US$65 currently.

2015-06-12 Oil Prices Chart

Source: Nasdaq

The impact has certainly been felt at a number of oil-related companies in Singapore. For instance, shares of rig builders Keppel Corporation Limited (SGX: BN4) and SembCorp Marine Ltd (SGX: S51) are still down by about 25% and 35% respectively since the start of 2014.

As we reflect upon the year that has passed for oil prices, I would like to point out two quick investing lessons.

1. Few (if any) saw it coming.

While the decline in the price of oil is obvious now, it wasn’t so obvious a year ago. In fact, the majority of economists didn’t see it coming.

Take a look at the tweet below on the consensus predictions made in July 2014 (represented by the green line). Most economists thought it would be trading above US$100 per barrel today. Obviously, it has not come to pass.

As such, if you are beating yourself up for missing the oil price rout, then don’t despair. It’s likely that no one saw it coming until it was too late to react.

Also, if you happen to find a great company within the oil and gas industry that you would like to own for the long term, then by all means consider it. But don’t buy a stock in the oil and gas industry for the sake of trying to participate in any oil price rebound. As the tweet shows, it’s extremely hard for anyone to invest based on a prediction of where commodity prices are headed.

2. Avoid tunnel vision.

With low oil prices now, it may be tempting to think that the best opportunities are in oil and gas stocks alone. To a certain extent, that may be true – after all, shares of Keppel have rebounded by 6% from its lowest close of S$7.98 (reached on 16 December 2014) over the past year.

However, are the only bargains found in oil and gas stocks?

With the benefit of hindsight, we can point towards other companies which have gained more than Keppel since it closed at a low on 16 December 2014; for example, tourism asset owner Straco Corporation Limited (SGX: S85) has seen its shares rise by 34% since then on the back of strong earnings results.

While the timeframe for measuring share price returns is short (just six months), the Foolish investing lesson remains – avoid tunnel vision when looking for shares to invest in lest you miss other bargains elsewhere.

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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 contributor Chin Hui Leong doesn’t own shares in any companies mentioned.