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Oil: The big drop

The falling price of oil doesn’t just mean cheaper prices at the bowser.


In a nation of car lovers the falling cost of fuel is something to celebrate. In some suburbs, motorists are paying less than $1 per litre for unleaded petrol – a price that was unthinkable not so long ago.

The crude facts

Plunging fuel costs reflect a global fall in the price of crude oil. As the Reserve Bank of Australia1 notes, since August 2015 the Brent crude oil price has dropped more than 50% to reach around $US50 per barrel in February 2016.

The slump in oil prices is due largely to a global oversupply. In the US and Canada, the former high price of crude made the production of shale oil economically viable. And despite today’s low prices, some oil rich nations haven’t scaled back production.

The impact for investors

The falling price of oil has been a contributing factor to this year’s sharemarket volatility. For motorists, however, cheap oil is great news, as lower prices at the bowser leave families with more cash in their wallet. This can encourage consumer spending, which is a plus for industry and the broader economy.

Cheaper fuel also means inflation is likely to remain low, and this reduces the possibility of an interest rate rise in the immediate future.

So longer term, cheap fuel can have a positive impact on sharemarkets.

Managing volatility

The current share market volatility is unnerving for many investors, but it's important not to allow short term market swings deter you from sticking to your strategic long-term financial plan.

If you have any concerns about how the current market volatility may impact your strategic financial plan, please give us a call so we can discuss. At times like this, it's important to stay in touch with your Adviser, so you can be confident your longer-term plan remains on track.

 

Talk to your local financial adviser today

1www.rba.gov.au/publications/smp/2015/feb/box-c.html

Things can change quickly in the market.

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