You already know the sharp fall in oil prices in 2016. On December 31, 2015, the WTI Crude closed at $37.07 per barrel. The oil price one year ago was $53.71. The price has fallen by a significant 31%.
If you think that the price fall is a crisis only to the oil industry, you are wrong. Of course, every company into exploration, distribution and processing of crude is suffering huge losses. But you must know that manufacturers and suppliers to oil related companies are also facing a slowdown. For example, steel companies manufacturing pipelines are running short of orders. Financial institutions like banks that have exposure to the oil industry are suffering.
However, do you believe oil price fall can sometimes pull entire indexes down? Some analysts think so. To add to this crisis, you can expect massive job cuts in oil companies. Job cuts will naturally affect consumer spending.
Yes, the oil industry is facing a deadly crisis. However, can any sector gain from this crisis? Yes, there are at least two industries that are already showing signs of killer growth. You must keep track of companies in these two industries. This knowledge will help you to plan better for future investments.
You do not have to be an economist to identify these two industries. You had known these industries for so long. If you can guess the prices that go down with the crude oil, you can spot these industries. Now you are going to see these industries one by one. You will also see the reasons why these industries are gaining like never before.
1. Automobile Industry
In 2015, an enormous number of people purchased cars. The number of cars sold in 2015 is the highest in 15 years. Do you wonder how low fuel price accelerates the sale of new vehicles?
You know that people have paid lesser for gasoline in 2015 compared to 2014. Thus, they have more money at their disposal. This extra money encourages them to buy larger and more comfortable cars.
Now you know that fuel prices are not a concern for the buyers. Hence, they prefer trucks and SUVs more than fuel efficient smaller cars. In 2015, the light truck sales jumped more than 10% compared to 2014. This change in preference has helped car makers. The profit margins are higher in trucks compared to cars.
You will know the tremendous gains made by car makers if you look at their income statements. Let us see the profits made by two major car makers Ford and General Motors.
Ford has reported a record profit (before tax) of $10.3 billion in 2015. This gain is huge if you compare this to $1.2 billion in 2014. The increase is almost tenfold. The Ford President, Mark Fields, has himself described 2015 as a breakthrough year.
General Motors too reported a blockbuster 2015. Income before tax of GM is $7.7 billion in 2015. This gain is much higher than $4.2 billion of 2014. Mary Barra, the GM CEO, has described 2015 as a strong year with record earnings.
For airline companies fuel is a major expense component. You may have noticed that ticket fares have not fallen much compared to fall in crude prices. Thus, the airline operators are generating almost the same revenue but are paying lesser for fuel. As a result, many Airline companies have reported huge profits in the last two financial quarters of 2015.
Let us now see the spectacular gains shown by 3 top airlines in the US.
In 2015, United Airlines posted a pre-tax profit of a whopping $4.2 billion. If you are unable to visualize the magnificence of this profit, you have to check the 2014 data. Believe it or not, the profit in 2014 was just $1.12 billion. The profit has risen by about 275%.
Delta Airlines has reported a pre-tax profit rise of 610% in 2015 compared to 2014. The company’s net income before tax in 2015 is $7.1 billion. In 2014, profit was just $1 billion.
Another company that has gained due to oil crisis is the Southwest Airlines. The profit for 2015 is $3.5 billion which is a 94% rise compared to $1.8 billion of 2014.
Now you know that the airlines industry is making huge gains. Another important fact will surprise you. These companies are performing well even when bookings by oil-related passengers are declining.
You must also know another encouraging sign for the airline industry. Many companies are placing a huge order for new planes. The increase in orders implies that there are enough funds to ramp up the orders for new aircrafts.
What is your takeaway?
There can be both winners and losers due to plunging oil prices. You have to accept the fact that automobile and airline industries are among the winners. At least, the data so far confirms this.