Last week the rapid fall in the oil price globally continued with the Brent oil price benchmark falling 7% after the OPEC meeting and then falling further again over the weekend. The Brent oil price (which is related to North Sea oil) has fallen by close to 40% since June and the price of Tapis, which is more relevant to Australians, has fallen similarly.

The rapid price fall has had a significant impact on energy companies worldwide, including in Australia. For example, Santos is down approximately 35%, Woodside 21%, Oil Search 22% and Origin Energy 24%. Small cap energy companies, such as Karoon Gas, Beach Energy and Drillsearch have fallen by even greater percentages.

Winners from the oil price drop include Qantas and transport companies that use significant amounts of fuel, such as Brambles and Toll. Unfortunately consumers have seen little benefit to date with petrol prices yet to fully reflect the significantly lower oil prices even allowing for the offset from the fall in the Australian dollar.

CommSec have updated their financial models for the Australian oil and gas sector, click here to view details. They have also provided an overview of what has been happening in the oil market; click here to view.

Australians are also aware that the iron ore price has been falling over the course of 2014 and is now down to around US $70 per tonne. This hurts all producers which is why the BHP share price has fallen below A$30 and why we hear that the Federal Government’s financial position is coming under further strain from declining tax revenues.

It is notable that the gold price has also fallen significantly as the oil price has fallen with gold now down to around US$1,200. This is reflected in the falling price of major Australian gold producers, such as Newcrest. Other commodities, like copper, have also been falling and these falls would appear to be tied into the strengthening view that inflation is falling globally despite the enormous financial stimulus by central banks in recent years. None of this is good for the mining and energy sectors or the companies that service them, such as Worley Parsons.

The fall in the Australian dollar is partially offsetting the pain of lower prices for Australia’s minerals and energy producers but it is difficult to escape the conclusion that the enormous mining boom has ended, as all previous such booms did. Nevertheless, mining and energy remain very important to Australia accounting for the majority of our exports and that’s not about to change.

 

This newsletter contains general advice. It does not take account of your individual objectives, financial situation or needs. You should consider talking to a financial adviser before making a financial decision. 

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