Oil price fall – the winners and losers

THE oil price fall delivering a festive season boost for motorists has set nerves jangling among investors as markets recover from another week of volatility.

"There is a conflict between short-term political gain and long-term economic stability". Picture: PA

Petrol prices are forecast to dip under the magic £1 a litre mark before the year is out, but there are fears for the future of the UK oil industry after the benchmark Brent price fell below $60 a barrel.

The slump, from a June high of $114 a barrel, is due primarily to a combination of a greater than expected increase in supply and weaker global demand.

And while the FTSE followed its worst week in three years with its best in two as sentiment improved in the US, the oil collapse may still have implications for ordinary investors and pension savers.

Companies with activities in oil and gas exploration account for 17 and 14 per cent of the FTSE 100 and FTSE All Share respectively and investors have been hit by the impact of falling oil prices on industry giants including Royal Dutch Shell and BP.

UK investment and pension funds hold billions of pounds in UK equity income funds that typically have a significant exposure to Shell, which accounts for 7 per cent of the total dividends from the FTSE 100.

The oil majors aren’t the only stocks being driven down, with engineering services companies among those to feel the knock-on effect.

Simon Lloyd, chief investment officer at Murray Asset Management in Edinburgh, said income investors shouldn’t be overly concerned, however.

“The story for actual dividend income receivable may be less gloomy than the picture painted by the share price moves,” he said. “Most of the major oil companies are able to withstand extended periods of low prices before borrowing levels begin to put dividends under threat.”

The oil price slump has been particularly bad news for emerging markets including Venezuela, Nigeria and, most notably Russia. But while emerging markets account for a growing proportion of ordinary investment portfolios, Lloyd said there was an upside to the crisis for some economies in the sector.

“Clearly Petrobras is suffering, and BP’s interest in Rosneft will be feeling the pressure; but at the same time, it’s useful to note that most of the Asian countries are net importers of oil, so the lower price could act as a real stimulus,” he explained. “Japan and India are particularly high-profile examples of this trend.”

The volatility caused by the oil price collapse offers a timely reminder of the need for those with cash in investment and pension funds to regularly review them.

Anyone approaching retirement with cash exposed to the markets should be especially vigilant, said Gregor Munro, financial planner at Johnston Carmichael Wealth.

“Overall there’s general acceptance that the amount of time investors are in the market is more important than trying to predict the right timing to be in or out of the market,” he said.

“However, for those approaching retirement, for example, being aware of where you stand in respect of your stated goals is very important and such significant volatility at the wrong time could impact on you for years to come.”

But he warned investors against knee-jerk reactions to volatility.

“If anything, you might try and do the opposite to your instinct – rather than sell investments why not consider the counterintuitive approach and think of a fall in prices as a chance to purchase what you believe to be a prudent long-term investment?”

That includes taking advantage of the opportunities created by falling oil prices, which helped push UK inflation to a 12-year low of 1 per cent in November.

“A fall in oil prices however will be of significant benefit to consumers and smaller business as it should result in more disposable income and profits,” said Munro.

SUPERMARKETS LEAD FORECOURT FALLERS

The UK’s big supermarkets came under fire last month for failing to pass on reduced oil prices to consumers, but costs are finally coming down on the forecourts as competition heats up.

Asda trimmed its prices again on Thursday, lowering its national price cap to a four-year low of 110.7p on unleaded and 117.7p on diesel. Other supermarkets followed suit and further cuts seem inevitable, leading the RAC to forecast petrol prices below £1 a litre before the year is out.

There are steps you can take to ensure you get the best deal possible. Experts suggest favouring busy, large forecourts in towns and smaller cities, where competition is more fierce and costs are lower.

If you tend to use supermarkets, it’s worth looking out for the fuel price discounts they offer, while you can cut costs further by going online to compare prices in your area. At www.petrolprices.com you can simply enter your postcode or location to produce a list of the cheapest fuel filling options near you.