What has caused this volatility?

The latest fall was driven by losses mainly in the resources sector, namely oil and gas. OPEC, the Organisation of the Petroleum Exporting Countries, is becoming more concerned by the increase in shale oil and gas supply out of the U.S.

Shale is a fine-grained, clastic sedimentary rock composed of mud that is a mix of flakes of clay minerals and tiny fragments of other minerals, especially quartz and calcite. Developments in drilling techniques have allowed for oil and gas to be mined from shale instead of traditional reservoirs.

In response to increased shale supply, OPEC has flooded the market with oil, which in turn has driven down the price to below $65 per barrel, 45 per cent lower than its’ high in June 2014. This is in an effort to sink the price of shale and squeeze the higher cost producers out of the market in the U.S.

The victims of OPEC’s practices are oil and gas producers such as Woodside Petroleum, BHP, Santos and to a lesser extent Origin. The companies themselves continue to perform as a whole, but in the short term they will be affected as OPEC flexes its muscle.

Cause for concern, or buying opportunity?

Hewison Private Wealth takes a long term view to investment and where possible we prefer to recommend blue chip stocks when they appear undervalued. This would be one of those occasions.

For the most part, at a business level the companies mentioned continue to perform as usual. Their recent share price falls do not reflect their day to day performance. In our opinion it certainly seems as though this is a short term occurrence and when the market returns to more stable levels, we believe these companies should recover their recent declines.

However, if you have any specific queries or concerns relating to your investment portfolio, please contact your adviser.