SocGen: Oil Collapse Points to 18 Percent Stock Gains

Collapsing oil prices have a history of pushing stocks higher as industries ranging from airlines to retailers benefit from lower energy prices.

U.S. stocks rise 18 percent on average in the year following a price decline of 30 percent or more, according to research by French bank Societe Generale. The gains tend to outweigh pressures on the energy industry, which makes up only 8 percent of the U.S. equity market’s total value.

“A fall in oil price is a positive for equities, with a clear acceleration in performance after six months,” Roland Koloyan, a European equity strategist at Societe Generale in Paris, said in a December 19 report. When the price of oil has dropped more than 30 percent in less than six months, “the only asset that systematically increases is U.S. equities.”

U.S. crude prices have fallen 48 percent since the June high of $108 a barrel on softening global demand and the highest U.S. output since 1983. The S&P 500 Energy Index has fallen 10 percent year-to-date as companies like Exxon Mobile, ConocoPhillips and Chevron have declined. The broader S&P 500 Index is up 12 percent through December 18.

Societe Generale found seven occasions since 1970 when oil prices declined by 30 percent or more in less than six months. Those declines have been followed by gains in the economy’s leading indicators, such as the Institute for Supply Management’s index of factory activity.

And oil prices are forecast to stay low for years to come, according to the bank’s outlook.

Michael Wittner, global head of oil market research at Societe Generale, estimates that West Texas Intermediate oil will rise from about $56 a barrel now to $70 by 2017. Brent North Sea crude will increase to $75 a barrel from about $61 in that period.

The industries that benefit from collapsing oil prices include cars, auto parts, food and retail, according to the report.

Meanwhile, green energy companies are facing major difficulties because of the decline in oil prices, according to a report by CNBC.

"When oil prices fall like this, it tends to prompt a pullback in dollars flowing into even electricity-focused solutions,” Rob Day, a partner with Black Coral Capital, told the website. “So it's eye-rolling, but still not a surprise to see solar stock prices fall in this market situation."

Cleantech stocks that have declined with the price oil include Vestas Wind Systems, Solarworld and Tesla Motors, CNBC said.