Will our Mutual funds take a hit when the Oil bubble pops and it goes down to 40 dollars a barrel?

Question

Will our Mutual funds take a hit when the Oil bubble pops and it goes down to 40 dollars a barrel?

Answer 1

I have to agree with many of the above... I'm not sure what makes you think the oil "bubble" is in fact a bubble.  Consider this:

Oil has not gone up with inflation (it has been less) for many years.

The global demand for oil is at an all time high, demand increases every day (growth in China, India, Brazil, and increase consumption in the US sound familiar?), and the supply is known to be finite, and it is very likely running out in the forseeable future (perhaps the next 100 years or so).  Oil exploration is becoming harder and harder as the very easy to pump and refine quality of oil (light sweet crude) is becoming more scarce.  That means that with increase production costs, the price of the end product (a barrel) will remain high or get higher.

Now that demand has stayed relatively flat in the US despite astronomical increases recently, the oil companies have us used to paying $4 per gallon for gas and $4.50 for home heating oil... it won't get much lower.

Answer 2

Not unless you're in a natural resources fund.  Other stocks should go up if oil crashes.

Answer 3

This has got to be one of the funniest questions I've ever read on Y!A.  Oil @ $40/bbl?  You should live so long.

Answer 4

Yes and no. On the one hand, oil company stock valuations are in part based on the value of their oil reserves and productions, so if my company produced a million barrels of oil which is priced at $140 a barrel around today but next year is priced at around $40 a barrel, then someone is going to have to directly reasses the value of my company to the tune of some $100 million dollars. Similarly, the asset value of my, say, 100 million barrel extractable reserves would diminish my hypothetical company's books from some $14 billion in reserves to $4 billion. Needless to further say, my company's stock would take a substantial tumble.

But if I operated an airline or some touristy thing, more folks will be able to travel with the necessarily lower gasoline costs (unless government listened to the environmentalists and imposed a tax to keep our consumption relatively low, for the environment, of course), my hotel chain or whatever would get more visitors, so with the increased business, those stocks would soar.

If your mutual fund is heavy in oil, yep, look out. If your fund is diversified, the net effect of the lower energy costs would be an overall economic boom.

Answer 5

It should be a non-event. Yes the energy companies will take a hit, but the other sectors should go up.

Actually the average mutual fund should go up.

Answer 6

That will probably happen only in your dreams.  If it were to happen, there would most likely be a huge rally in most stocks except oil related stocks.  Remember a diversified portfolio is your best protection against some particular event ruining your day.

Answer 7

I do not believe that either of us will ever see oil at or below $60 a barrel... WHY WOULD ANYONE SELL AFTER SEEING THE PRICE REACH CURRENT LEVELS?

     I believe in supply-demand, the invisible hand and I have seen or read about the tulip bulb craze and beany babies. But oil is an essential commodity critical to the world economy.

       Your mutual funds are likely to be quite diversified and unlikely to do anything but go up if oil were to take a major dip. This presumes that even if your portfolio includes one or two oil companies of oil drilling manufacturers your net result will be more companies each making more profits with the decrease in energy costs.

Answer 8

I too believe the oil bubble will pop, but maybe only going down to $75 a barrel or so.

If anything, oil going down dramatically should be great news for almost all mutual funds, except maybe those that invest in the energy sector.

To davidstaiti - why do I believe this is a bubble?  How else can you explain a 100% run up in price over 1 year.  Certainly demand has not skyrocketed in 1 year.  Neither has the dollar weakened more then 15%.  Remember, America can afford the price doubling.  Can China, India, South America, etc.?  American demand is already decreasing a little.  I expect world wide demand to decrease significantly is developing areas.  When that happens, oil will return to reasonable levels.

Answer 9

No.  It should actually do a bit better.

Answer 10

$40 bbl is a thing of the past until the ENTIRE world stops using ANY petroleum products.

Unless you have a mutual fund that is invested long in oil, oil services, integrated oil etc, only those are likely to be effected by lower oil prices.

ie:

OIH

OIL

USO

XLE

APA

XOM

CHV

HAL

BHI

Lower oil prices, or a stronger US Dollar can actually help stock prices.

I think that oil will pop at some point. I expect demand in the USA to decrease if oil (gas) prices increase. People are dumping their SUV's for small more fuel efficient cars.

GM is now closing 4 truck plants, and considering selling the Hummer brand.

Demand for oil is very global, esp in China and India. However, if US consumers decrease their fuel needs, this will decrease global demand, and decrease prices.

Longer term I think oil prices might range somewhere between $85 to $120 bbl.

Answer 11

it wont. aftertheoilcrash.net