Commodity prices are falling rapidly. The European crude oil benchmark Brent is approaching $90 a barrel having been as high as $115 a barrel back in June. This is a long way from peaks upwards of $1,900 a barrel back in 2011. The gold price is below $1,200 per ounce, a 10-month low.
In part this reflects a strong dollar (see Shares, Agenda, 2 Oct), yet the decline in oil prices is also a function of a slowdown in the Chinese economy and ample supply.
Reduced energy and fuel costs are good news for airlines and transport companies as well as manufacturers and distributors but are bad news for oil and gas companies and, in particular, the oil services companies which support their activities.
Liberum Capital says: ‘Oil companies are focused on costs at a time when oil prices are weakening. We fear the slowdown in demand for oil services may be prolonged and have cut our target prices to reflect bottom-of-cycle multiples.’