Tags: Coronavirus | companies | winners | ultralow | oil | prices

These 2 Companies May Be Among New Winners From Ultralow Oil Prices

These 2 Companies May Be Among New Winners From Ultralow Oil Prices
(iStock)

By    |   Wednesday, 01 April 2020 08:59 AM

Raymond James analyst Pavel Molchanov has been studying just which companies stand to gain from the super-low crude-oil prices.

Low oil prices usually benefit shipping companies, but the benefit is mixed because of the larger economic consequences of the virus. Fuel—generally diesel—makes up a large percentage of freight shipping costs, but it is generally passed through to end users that order the goods like supermarkets and other stores, Barron’s explained.

One theory that Molchanov floats is that more fuel-intensive shipping like airfreight and trucking will be more attractive than less fuel-intensive methods. That’s because, on a relative basis, cheap oil will make the more fuel-intensive modes less expensive.

The market could shift “as more fuel-intensive modes (think: air, trucking) could experience proportionately larger discounts (i.e., cost of entire freight bill) compared to less fuel intensive modes (think: rail, intermodal), which in turn could somewhat limit rail and (specifically) intermodal’s value proposition as an alternative to trucking,” Molchanov wrote.

That would benefit freight companies that use trucks like Werner Enterprises (WERN) while hurting rail companies like Union Pacific (UNP) and BNSF, which is owned by Berkshire Hathaway (BRK.A).

Another area that has benefited from low oil prices is natural gas. Gas drillers have been hurt in the last couple of years because oil drillers are producing a lot of “associated gas” that has created a glut of gas in the market. As oil prices fall, oil drillers slow production and thus take that “associated gas” off the market. In the next year, some analysts think that natural gas prices could double. Among the beneficiaries would be gas producer EQT (EQT).

Meanwhile, crude oil benchmarks ended a volatile quarter with their biggest losses in history, as both U.S. and Brent futures were hammered throughout March on the global economic freeze due to the coronavirus pandemic and the eruption of a price war between Russia and Saudi Arabia, Reuters reported.

Both benchmarks lost roughly two-thirds of their value in the quarter, with March's declines of about 55% accounting for the lion's share of the losses.

U.S. West Texas Intermediate crude salvaged the end of the month with a modest 2% gain on Tuesday, while Brent ended slightly lower.

Global fuel demand has been destroyed by travel restrictions due to the coronavirus pandemic. Forecasters at major merchants and banks see demand slumping by 20% to 30% in April, and for weak consumption to linger as economic activity is severely curtailed for the next several months.

© 2021 Newsmax Finance. All rights reserved.


   
1Like our page
2Share
StreetTalk
Raymond James analyst Pavel Molchanov has been studying just which companies stand to gain from the super-low crude-oil prices.
companies, winners, ultralow, oil, prices
411
2020-59-01
Wednesday, 01 April 2020 08:59 AM
Newsmax Media, Inc.
 
Newsmax TV Live

Newsmax, Moneynews, Newsmax Health, and Independent. American. are registered trademarks of Newsmax Media, Inc. Newsmax TV, and Newsmax World are trademarks of Newsmax Media, Inc.

NEWSMAX.COM
MONEYNEWS.COM
© Newsmax Media, Inc.
All Rights Reserved