The 12 worst investments of 2014, #2: crude oil

Performance in 2014: -45.1%

See all 12 of 2014’s worst investments here

What happened?

After hitting a peak of around $115.71 on 19 June, Brent crude oil began to slide. By September, it had fallen below $100, and by November it was below $80. After the Gulf states shocked the investing world in late November by blocking cuts in production, it plunged to around $60, a fall of nearly 50%.

Who are the losers?

According to Reuters’ Mohamed Bazzi, Saudi Arabia “is trying to squeeze US shale oil out of the market”. It is “also punishing two rivals, Russia and Iran, for their support of Bashar al-Assad’s regime in the Syrian civil war”.

Bloomberg’s Bradly Olsen and Tim Loh report that American shale oil firms are “already beginning to cut back drilling”. Meanwhile, Russia is in the throes of a full-blown currency crisis. The Saudis’ strategy is working.

Who are the winners?

Capital Economics thinks that, “most countries (and the world as a whole) should be better off as a result of the slump in oil prices, including key emerging markets”. Similarly, the Associated Press’s Jonathan Fahey believes that cheaper oil “acts like a tax cut and help boosts consumer spending”. At the same time, “diesel and jet fuel prices have also plunged, helping boost the profits and share prices of airlines and shippers”.

What happens next?

As usual, experts are divided over whether prices will rebound. Bulls include Brian Hicks of US Global Investors’ Global Resources Fund, who believes “oil prices are below where they should be, and hopefully they’ll start gravitating back to the equilibrium price of between $80 and $85 a barrel”.

In contrast, private bank Lombard Odier believes that “investors probably need to factor in durably lower oil prices than they have been used to over the past three years”.

What have we learned?

Oil prices are more volatile than people think.

See all 12 of 2014’s worst investments here