Oil takes a tumble

The FT100 closed at 5965 today, down 7.7%. That puts it in the top 5 one-day falls according to a post on Stockopedia. What is noticeable – and worrying – is that big falls do not occur in isolation, but cluster. Those clusters are 1987 (4 out of the top 20), 2001/2 (3 of 20) and 2008/9 (13 of 20). So we can probably expect one or two more plunges to occur over the next year.

The other big news for the day is the plunge in oil pricdes. Brent crude was down 27$ to $35.64 a barrel, having fallen to nearly $30 a barrel at one point. At the start of the month, Brent crude was trading at $70 s barrel.

Oil sector shares were amongst the worst performers. BP was down 20% to 318p, and RDBA (Royal Dutch Shell) was down 18% to 1317p.

The 10-year daily chart of Brent Crude Oil Prices shows that the lowest price during that period was around $28.55 on 18 Jan 2016, or therabouts. The share price bottomed at 1375p on that date.

We are now trading at below that figure, suggesting that RDSA’s shares are incredibly cheap. I’d like to say that on the one hand the shares are about as low as they can go. On the other hand, the EV/EBITDA is 5.2. That’s low, but if you want to be really greedy, then maybe wait until it trades below 4. There’s no guarantee that will happen, of course, so you might miss out on the deal of the decade.

IAG (former Brit Airways) trades on an EV/EBITDA of 3.7, a very low rating.

I do own shares in IAG, but not RDSA. I was under the impression that I did, but I checked my records and realised that I sold them at 1982p at the beginning of February. They’re down 34% since then, so it was a lucky sell on my part.

What’s interesting is the shares were going off the boil even at that stage. It was almost as if Mr. Market was anticipating the oil price to fall further.

The New York Times reports the reason for the fall is the Russian rejection of an agreement with OPEN on cuts in oil production in order to buoy up prices.

Stay safe out there.


About mcturra2000

Computer programmer living in Scotland.
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