oil prices

8 Surprising Ways Cheap Oil Impacts Your Wallet

Tim Lemke — Mon, 22 Feb 2016 11:30:05 +0000

When it comes to oil prices, there just doesn't seem to be a bottom these days. Crude oil is selling for about $30 a barrel, and that's having a major impact on both the global economy and Americans' pocketbooks.

How are low oil prices affecting your finances?

1. You're Saving on Fuel and Energy Costs

It's simple: Low oil prices mean you pay less to fill up your car, or to heat and cool your home. IHS Global Insight predicted that Americans would save more than $100 billion, or $750 per household, due to low oil prices in 2015 — and savings are expected to continue this year. (See also: This Is How the High Cost of Cheap Gas Hurts You)

2. Oil Stocks Have Been Hammered

In case you didn't notice, any stock or mutual fund associated with the oil industry has been getting creamed for quite a while. I bought shares of the iShares Oil and Gas ETF last year, believing they were bottoming out and would go up in value in short order. I was wrong. Shares are down 25% in the last 12 months, and 43% in the last two years. If you have a 401K or IRA with energy stocks, you may have seen your portfolio drop quite a bit over the last year or so.

3. You're Saving Everywhere Else, Too

In America, we're currently in a period of low inflation, and the low price of oil has a lot to do with that. Low oil prices mean it's costing less to ship goods, or for plastics manufacturers to make their products. In fact, low oil prices have a ripple effect on the price of almost everything. As evidence, the consumer price index declined 0.1% in December, after rising just 0.2% in November. The CPI is up just 0.7% in the last year. (On average, it's gone up about 2% annually over the last decade.)

4. Recycling Isn't a Cash Cow Anymore

Petroleum is the key ingredient in plastics, and with oil so cheap, there's less demand for recycled plastics. After all, why buy used when new is cheaper? After decades of effort and investment, localities across the country have seen recycling rates rise, along with revenue to local coffers. For example, in 2015 the city of Washington, DC paid its waste management contractor $1.37M to take its plastics and other recyclable materials off its hands, but as recently as 2011, the city earned $550K for its reusable trash. "A real fear now," Michael Taylor of the Society of the Plastics Industry told the New York Times, "is that recycling rates might go down. That would be a horrible situation."

5. Fuel Taxes Could Go Up

Many lawmakers and even some business groups have been urging for an increase in federal and state gas taxes as a way of funding infrastructure improvements. And they say the time may be right for an increase, because a gallon of gasoline is selling for its lowest price in years. (Gas taxes are a harder sell when it's already expensive to fuel up.) President Obama recently proposed a $10 per barrel tax on oil in his latest budget, and Alabama, Alaska, and Indiana are among the states discussing a gas tax hike.

6. You're Traveling and Eating Out More

If you're paying less for gas, there's more money in your pocket. That means it's less of a financial challenge to take the family to a restaurant or on a vacation. The Wall Street Journal reported that spending on food and accommodations last summer was up 8% over 2014. Many tourists sites, including National Parks, saw good upticks in attendance last year and expect solid performances in 2016.

7. Life Is Harder if You Live in West Texas or North Dakota

For several years, places like North Dakota or Midland, TX were enjoying super-low unemployment and a migration of people looking to take advantage of the oil boom. But things aren't nearly as active there now. The state economy grew by only 1% last year, compared to 6% the year prior, according to Kiplinger's. North Dakota's governor recently presented a plan of budget cuts brought on by lower oil revenues. This has also impacted the budgets of other oil-dependent states, including Alaska and Louisiana.

8. The Ruble and Other Currencies Are Down

If you're Russian, or invest in currencies, you may have noticed that the value of a ruble against the euro and dollar has been sliding. Journalists reported in January that Russia was looking to cut 10% off its federal budget, which was originally made with $50 per barrel oil prices in mind.

Russia is one of many countries that relies heavily on oil exports to drive their economy, so low prices can have a severe impact on economic growth. Low oil prices have also impacted the Canadian dollar and Mexican peso (both down about 20% in the last two years), and the Norwegian krone (down about 25%.) The one plus side for Americans is that the U.S. dollar has remained strong, and it's now relatively cheap to travel to some of these countries or consume their exports.

Have you noticed any surprising effects of cheap oil? Lets us know in comments!

This article is from Tim Lemke of Wise Bread, an award-winning personal finance and credit card comparison website. Read more great articles from Wise Bread:

Profit on the Oil Bust With These 10 Cheap Energy Stocks

Tim Lemke — Wed, 11 Feb 2015 14:00:07 +0000

The recent decline in oil prices has certainly been great news for motorists, who have seen gasoline prices fall to their lowest prices in years. But with crude oil prices below $50, it's hard for many companies in the oil industry to make a profit, and their share prices have declined accordingly.

But don't run away from these stocks — many are quality holdings which are likely to rise again when oil rebounds. In fact, you might consider scooping some of these up on the cheap, and turning a profit when prices climb again.

Here's a look at 10 high-quality energy stocks and ETFs that have been hammered in recent months.

1. iShares Oil and Gas ETF [NYSE: IEO]

As of the first week of February, shares were down more than 12% over the past 52 weeks. This ETF includes holdings in some of the largest oil and gas companies in America, and seeks to track the Dow Jones U.S. Select Oil Exploration & Production Index. Full disclosure: I bought a small number of shares back in December, assuming oil prices weren't getting much lower. It's been a good bet so far, as I've seen shares rise about 6%. But it will be a while before we see shares get back to levels from even a year ago.

2. iShares U.S. Oil Equipment and Services ETF [NYSE: IEZ]

Like the broader Oil and Gas ETF, shares have been pounded since the drop in oil prices began. Shares of IEZ are now 25% less valuable than they were a year ago, and are down more than 35% in the last 6 months. This ETF has holdings in some of the largest gas equipment companies, most of whom have seen their shares take a dive.

3. SPDR S&P Oil & Gas Equipment & Services ETF [NYSE: XES]

This exchange-traded fund tracks the oil and gas equipment sector, and has been hammered over the last year. Shares are down 38% in the past 12 months, and dropped 20% during one brutal two-week period in November.

4. ExxonMobil [NYSE: XOM]

There was a time when ExxonMobil was the largest company in the world. Low crude oil prices have put a dent in the company's overall market cap, but it's still a huge company, with revenues of $32.5 billion in 2014. Fourth-quarter earnings were about $6.6 billion, or 21% lower than the same quarter in 2013. Shares are down about 11% since a 52-week high in July.

5. Halliburton [NYSE: HAL]

Down nearly 40% in the last year, this gargantuan oilfield services firm has not been immune to the lowering of oil prices. Halliburton is heavily involved in the extraction of shale oil, which has helped boost overall production in the U.S. But this extraction process is expensive, and peak oil flows don't last long. Thus, it may be some time before prices rebound to previous levels. Value investors, however, might get excited at the notion of buying shares of a large firm like this for near $40, and share prices did rise slightly at the end of January.

6. Schlumberger [NYSE: SLB]

Shares of this Houston-based Halliburton competitor reached as high as $118 in July of last year, but then tumbled to under $76 within six months. They've crept up a bit since, but are still more than 7% off of the 52-week high. The company announced layoffs of about 9,000 workers in January, citing a slowdown in drilling activity.

7. Conoco Phillips [NYSE: COP]

In late January, the nation's third-largest oil company said it would reduce its spending on oil exploration this year. Conoco reported a $39 million loss for the fourth quarter, down from a profit of $2.5 billion the year prior. As the company fights to make money with crude oil prices so low, shares of Conoco have fallen by about 25% since July.

8. Chevron [NYSE: CVX]

One of the world's largest oil producers, Chevron is still trading above $100. But shares are down more than 11% from a 52-week high. The company reported fourth quarter earnings of $3.5 billion — still a huge chunk of change — but down from $4.9 billion during the same quarter a year prior. Chevron said it will spend 13% less in oil exploration this year than in 2014.

9. Whiting Petroleum [NYSE: WLL]

This company has big oil operations in North Dakota and in the Rocky Mountains, and has had one rocky year. Whiting is one company known to have share prices correlate strongly with the price of oil, and shares have been brutalized in the last year, down a full 48% in 52 weeks and a whopping 60 points (66%) since September. Whiting completed a deal for Kodiak Oil & Gas in December; the value of the all-stock deal was nearly half of its initial proposed price.

10. Continental Resources [NYSE: CLR]

Like Whiting, Continental's share prices track closely with oil prices, so it's been a tough road for the company recently. Shares are down 16% over the last 52 weeks and 40% since September. Continental said it plans to operate 31 rigs in 2015, down from 50 in 2014. There is some good news for Continental, as shares are up $14, or 43% since mid-December.

Are you dumping oil and energy stocks, or loading up on them now that they're cheap?

This article is from Tim Lemke of Wise Bread, an award-winning personal finance and credit card comparison website. Read more great articles from Wise Bread:

Dropping the Price of Gas to $2.50 a Gallon in a Week

Paul Michael — Thu, 28 Apr 2011 10:24:09 +0000

If speculation can raise the price of oil, why can't it drop it?

That's the question that's been taking up a big chunk of the conversation between my friends, and I have to admit, it seems very possible.

President Obama announced recently that he plans to withdraw the $4 billion in oil subsidies because the companies are making too much money. They don't need them, they don't deserve them, and that money could go to much better use.

You have no arguments from me on that one. Oil companies need tax breaks like millipedes need more legs. And when Republicans start agreeing with repealing the tax breaks, well, you know this is a non-partisan issue if ever there was one.

But while I applaud President Obama's intentions and motives, I don't see this being the answer. In fact, I think it could make matters worse. And the reason comes down to one word — speculation.

Speculation Drives the Market

Right now, oil prices are being driven up by speculation, not by sudden demand or lack of resources. Yes, the wars are certainly not helping, but they do not account for the price rising by almost $2/gallon since the election of 2008. That's double the price in just two years. Has your salary doubled in two years?

You may recall that a few years ago, the average price of a gallon of regular gasoline climbed well over $4. That was down to oil speculation, pure and simple. The oil companies made astonishing profits, and then the price fell again, below $2/gallon. (See also: Gas Efficient Driving)

What happened? Did we find a massive reserve of oil bubbling below the surface of an easily accessible stretch of land? Nope. It was speculation, too.

Why Can't the President Use Speculation to Lower Oil Prices Right Now?

Is that a very naive outlook? Or could it actually work?

For instance, what if he gave a huge speech tomorrow stating that America is...

...putting billions of dollars into exploratory drilling.
...opening up Anwar for oil extraction.
...cutting major deals with Saudi Arabia and other oil-producing nations.
...opening up access to our massive oil reserve.
...siphoning oil from the Iraqi oil fields.
...demanding a minimum 60 mpg in vehicles by 2018.
...expanding wind, solar, and nuclear power programs, reducing the need for oil.

What would happen? Oil prices would drop sharply, and quickly.

It's a simple concept. More oil means less demand for what's out there right now, and prices fall. Gold continues to rise in value, but imagine what would happen to the price if an enormous gold mine, abundant in the stuff, was discovered.

Rare Is Valuable; Plentiful Isn't

Similarly, President Obama's intentions to cut the tax breaks mean one thing to me — higher prices. Sure, we get to stick it to the oil companies and save $4 billion, but that's money we aren't going to see any time soon. Remember, the country has quite the debt to pay off. But if oil companies are getting less money, that will only make the price of oil go up. If they aren't getting help to do more drilling, oil is even more valuable.

Now, I'm not saying we do any of the things I suggest President Obama should say. The stock market runs on rumor and, yes, speculation. If there's the merest hint that oil is about to become a lot more plentiful, traders will dump oil in favor of something else. Probably gold. And that's fine by me. I don't need gold to drive to work. Gold does not play a major role in every single thing we use, from the computer in front of you to the food you'll eat today. Gold, silver, diamonds, platinum, and frozen orange juice, they can all hit record highs. But oil, it's one of life's necessities, and it should not be traded in the same way. So, why not use speculation in our favor for once?

I believe gasoline will hit $5/gallon this year. It may even reach $6/gallon. I also believe that some well-chosen words by our government, regardless of actual intention, could help avert that eventuality. Many of my friends agree. But what about you?

This article is from Paul Michael of Wise Bread, an award-winning personal finance and credit card comparison website. Read more great articles from Wise Bread: