Five Consumer Stocks To Buy As Oil Tests $40

Prices of U.S. crude fell below $40 on Wednesday, leading to declining benchmarks on lower energy stocks. It has been a routine phenomenon this year as oil continued to slump due to a variety of reasons. At present, there is a wide consensus that such a trend is likely to continue in the immediate future.

But there is a silver lining to the cloud on the oil sector. Lower oil prices mean that consumers in the U.S. only have to allocate a much smaller proportion of their income toward fuel costs. This is likely to benefit stocks from the retail and discretionary segments. Adding such stocks to your portfolio would be a smart move for you at this point. 

Immediate Trigger

U.S. government data revealed a 10th straight weekly increase in U.S. oil supplies on Wednesday, leading to a fall in global oil prices. The federal government’s Energy Information Administration (EIA) report revealed that crude inventories increased by 1.2 million barrels for the week ending Nov 27, 2015. U.S. crude inventories are now at the highest level witnessed around this time of the year for the first time in 80 years.

As a result, U.S. crude oil prices settled below $40 for the first time since August, while Brent crude oil plummeted to an almost seven-year low. Prices of WTI crude oil and Brent crude oil dropped 4.8% and 4.6% to $39.94 a barrel and $42.49 per barrel, respectively.

Prices Likely to Trend Lower

The slide in the price of crude has been quite spectacular given that it was hovering above $100 around a year ago. Several factors suggest that the slump is likely to continue going forward. Oversupply has dogged the industry for a long time now. This is due to two factors, the U.S. shale boom and OPEC’s decision to keep output unchanged despite the slump in prices.

Lower consumption across the world is the reason for lower demand. Europe and Japan continue to struggle even as they make vigorous efforts to boost their flagging economies. But the biggest worry on this front is China. The world’s second largest economy may never again experience the pace of growth witnessed until recently, leading to demand falling even in the long term.