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Kearney Group Article Market Rollercoaster 01

What’s happening with oil prices?

11 March 2020.

 

Insight into the market rollercoaster.

 

Late last week we published this article about what to expect and how to navigate market volatility in the wake of coronavirus.

We noted that “as with epidemics of the past (Ebola, SARS, H1N1), concern around coronavirus is causing all sorts of skittish behaviour [and] heightened volatility across global investment markets.”

And, because nothing ever stays still for very long, we wanted to share another brief update on the recent volatility in oil pricing.

 

Oil prices on the move.

 

Coronavirus-related movement on global investment markets was punctuated sharply by last weekend’s oil price dispute between Saudi Arabia and Russia.

It is our view that over the coming decades, we will witness the exit of an old technology (fossil fuel) and the rise of its successor (renewables).

This dispute between Saudi Arabia and Russia is among the early tremors of this inevitable shift.

As with most other transitions from old and known to new and novel, there will be points of resistance and the old bastions will move to defend their position and draw new borders.

The crucial role that energy currently plays in the world economy means we will witness, and feel, this succession taking place. Investment markets will respond as shots are fired; but we believe this shift will ultimately be a good thing – both for the economy and our environment.

The longer term trajectory is that energy will get cheaper, and it will be renewable, not fossil-fuel based. And, like the internet technology boom of the early 2000s, the renewables energy sector will present exciting opportunities for investors in the coming decade.

The longer term trajectory is that energy will get cheaper, and it will be renewable, not fossil-fuel based.

Kearney Group Private Wealth on the transition from oil to renewables.

Further insight.

 

The below charts provide some further insight into the current market volatility.

 

Flashback to SARS: how markets respond to an epidemic.

Like SARS in 2003, coronavirus is causing market volatility. 

This chart shows how the market fell and then recovered over the 9 months following the identification of SARS.

SARS 2003 Drawdown and Recovery

 

Oil price fluctuations over time.

This chart demonstrates that sharp oil price fluctuations have been commonplace over the past 15-20 years.

Given both this historical trend and reducing reliance on fossil fuels, periods of oil price volatility should be expected into the future.

Crude Oil Summary

 

Sudden decline does not equal certain doom.

Sudden declines in markets are not a good predictor of the period ahead. This chart compiled by Franklin Templeton shows the total return for a year and the sharpest decline that happened in that year. You’ll note that in most years, even those with dramatic declines, finish ahead.

The US Stock Market’s Largest Intra-Year Declines vs. Year-End Total Returns

We’re here.

 

These ructions in markets are part of an investor’s journey.

At Kearney Group, we advocate remaining invested in line with your long term strategy – whilst acknowledging there will be highs and lows ahead.

All this aside, we understand that volatility can feel unsettling, so if you have any questions, we’re always here.

Speak to the team.