Is A Low Oil Price All That Bad?

The falling price of oil has been a big theme in the stock market recently, with market commentators linking low oil prices to declines in stocks.

Global stock markets fall amid oil rout” read a headline from a BBC article published just two days ago. CNN had another piece, also on the same day, with the headline “US stocks set for another rough day amid oil crash.

These got me thinking, are low prices all that bad for everyone?

As a driver myself, I can tell you I would much prefer low oil prices than higher ones. Similarly, there are many companies that might actually benefit from low oil prices and may be extremely happy if oil goes down to US$15 per barrel like some investors are predicting (for perspective, oil is around US$30 per barrel today after falling from over US$100 in mid-2014).

Here are a few of such companies.

The runway is clear

According to Singapore Airlines Ltd’s (SGX: C6L) latest annual report for its fiscal year ended 31 March 2015 (FY2015), fuel costs contributed to 37% of overall expenses. Given that fuel is such a big component of the airline’s expenses, lower oil prices can possibly mean huge fuel savings.

We are already seeing this happening with Singapore Airlines enjoying a 16% year-on-year decline in net fuel expenditure (after accounting for hedging costs) to S$458 million in the first-half of FY2016.

Other transport companies, such as land transport services provider ComfortDelgro Corporation Ltd (SGX: C52), might also benefit from an environment of ultra-low oil prices.

Transport-related firms are obvious candidates for companies that benefit from lower oil prices. Less obvious ones are companies such as  the supermarket operator Sheng Siong Group Ltd (SGX: OV8) and food & beverage retailer BreadTalk Group Limited (SGX: 5DA).

Both companies could also enjoy better savings with lower oil prices. The two firms depend greatly on their delivery networks to ensure smooth operations in their business (their shops need to stock up on products after all). Thus, a decline in oil prices might translate to lower fuel cost for similar companies as they save on their deliveries across their outlets.

Foolish Summary

The huge collapse in oil prices might seem frightening to investors. But, if we take a step back, low oil prices might not be all that damaging for everyone. In fact, it could even be wildly beneficial for some. It is our job as investors to know the true implications of events such as falling oil prices instead of merely following the general market’s reaction to it.

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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 doesn’t own shares in any companies mentioned.