Weak Oil Prices a Boon for Trucking and Airlines

Weak Oil Prices a BoonOil is a dirty investment at this time, with the fundamentals pointing to continued softness in oil prices, driven by strong supply and weak demand. But there may be investment opportunities in trucking and airline stocks.

Now the oil cartel, the Organization of the Petroleum Exporting Countries (OPEC), could have given prices a much-needed boost when it recently met, but it failed to do so. Some market pundits were expecting OPEC to perhaps make a gesture of support and cut its daily production by 500,000 barrels or even a million, but it didn’t happen. Oil prices plummeted to the mid-$60.00 level for West Texas Intermediate (WTI) crude (as you can see in the chart below), while Brent oil prices also saw a drop.

Light Crude oil - Spot Price Chart

Chart courtesy of www.StockCharts.com

While it’s great for the consumer with cheaper gas at the pumps and for transportation companies where fuel is a major cost component, it’s a different story for the producers.

Oil giant Exxon Mobil Corporation (NYSE/XOM) told CNBC that it would be fine, even in the worst-case scenario, if oil prices fell to $40.00 per barrel.

Now, while it may be fine for Exxon due to size and cash reserves, the smaller producers would likely suffer on weakening oil prices. The reality is that even OPEC and non-OPEC countries alike will find it difficult to operate and start new projects on weakening oil prices. There is a general feeling that many countries require oil prices at the $90.00 level just to break even.

Also Read:  9 Stocks That Could Benefit from Falling Oil Prices

My thinking is that OPEC wants world oil prices to tank and force production lower from global and domestic producers, especially those in the Bakken region in North Dakota and Montana, where shale oil from the fracking process has been booming over the past several years. Whether this happens or not will depend on how long oil prices are depressed and if they move even lower. OPEC can withstand it, but some of the U.S. producers may not be so lucky.

I have talked about issues on the supply side, but we also have issues on the demand side due to the economic stalling in China and across Europe. Unless demand suddenly surges, you should expect supply fundamentals to dictate oil prices in the foreseeable future.

The Stocks Benefiting from Weak Oil Prices

The chart below of the Dow Jones Transportation Index has been surging higher as oil prices (shown by the green line) decline.

Dow Jones Transportation Average Chart

Chart courtesy of www.StockCharts.com

Assuming oil prices stay low, investors can look at picking up some transportation stocks, such as those in the airline and trucking areas. In the airlines space, I like companies like JetBlue Airways Corporation (NASDAQ/JBLU), Southwest Airlines Co. (NYSE/LUV), and United Continental Holdings, Inc. (NYSE/UAL). In trucking and delivery, I’d take a look at Ryder System, Inc. (NYSE/R), FedEx Corporation (NYSE/FDX), and United Parcel Service, Inc. (NYSE/UPS).