Certainly a Black Friday for....

Click to visit Mauldin Economics

...the oil price and related stocks after OPEC decided not to cut production to shore up the oil price. Looking at the chart above it is interesting that as the recent floor of $100 has broken perhaps $70 might be some kind of equilibrium level at half the extreme peak in 2008 and where it snapped back to after the 2009 financial and economic melt down. I guess time will tell, but if that is the case then it could have serious implications for the industry and operations that were only viable on the basis of $100 oil. This in itself might help to stabilize the price as marginal production is withdrawn.There was a good piece on this from Mauldin Economics yesterday which you may have to sign up for his free service if you want to read it, well worth it at the price I would say.

So certainly makes me think about my AMEC as they have just bought Foster Wheeler in the US and effectively doubled up in Oil services, although they do serve other areas too. Others to worry about are the Oil majors as their profits will come under pressure from this. In particular BP, in addition to its legal issues, has big exposure to Russia with a JV which will have even more problems with oil prices at these levels and downgrades now likely. Thus their dividend could come under pressure or they may cut back on planned capital expenditure which is why I worry now about AMEC.

On the other hand though I guess people could say that this weakness is in the prices and that there may be contrarian opportunities with these stocks now trading towards their lows and offering seemingly attractive yields. However, I found it quite instructive that with his new fund Neil Woodford, who managed to avoid the banks in the run up to 2008 and sold his Tesco to Warren Buffet before it collapsed, is now trying to complete a hat trick of great calls by having no oil majors in his portfolio. They wrote a good piece on this at the end of October from which you can read by clicking the graphic below which is sourced from that piece.

The other thing to bear in mind is that the weaker oil price will be positive for industries using lots of oil or energy like airlines, holiday companies and industrials as well as being a positive for consumer incomes from falling petrol and heating costs, eventually when and if they are passed on. So it could also be a plus for retail and consumer facing stocks too. So good luck with shopping for bargains in the shops and on the stock market.

Click to read Over a Barrel from Woodford Investment Management.