Is the bottom in sight, or is there a long way to go?

Just like the financial crisis, nobody could have predicted the collapse in oil and commodity prices, which are now reshaping stock markets and stealing headlines around the world.

While cheaper prices have been great for consumers at the pumps, the impact on companies who are connected to the oil and gas sector has been devastating, and not least, for energy giant, BP, who last week announced hundreds of job losses for its workers based out in the North Sea.

It was the latest of oil operators to announce job losses, with ConocoPhillips, Shell and Chevron announcing similar cuts last month.

Following a review of its operations, the firm said it expects to shed around 300 staff due to the oil price fall, leading unions to fear this will now set the trend for a raft of announcements across the UK energy industry.

BP has been downsizing since the Deepwater Horizon oil spill in the Gulf of Mexico in 2010 and the oil price decline has added urgency to further cuts.

Although the short-term outlook for the UK energy industry may look bleak, there is now some compelling value in this sector for investors, especially in the smaller oil companies.

However, some companies, especially at the smaller end of the spectrum, will undoubtedly go under as a result of the oil price decline.

It is unlikely to recover quickly and Opec’s support will no doubt dictate how quickly the natural forces of market mechanisms take control, whereby supply and demand comes back into equilibrium and prices stabilise. Refinancing by already heavily indebted companies will be difficult, and, in my mind, merger and acquisition activity is likely to appear at some stage.

Taxes were hiked when the price was as high as $140 per barrel for Brent Crude in 2008, and they have not come down since.

The North Sea is crucial to Britain’s energy industry and oil companies now look to Chancellor George Osborne’s March Budget for action on tax breaks and the Scottish Government has called for the supplementary charge on the industry by the UK Government in 2011 to be scrapped.

Workers in the sector look as far back as 1986 to a time when it was in similar turmoil.

Oil companies and employees have weathered the ups and downs before, but the industrial decline is thought to be different this time, begging the question, is this the new age of decline?

Further side effects are inevitable and there is much debate around whether the US Federal Reserve will lead the way and gradually increase rates in 2015 as planned.

The debate also looks at whether the falling oil price will stimulate consumer confidence enough to increase demand in the economy and lift UK inflation; especially when last week inflation, as measured by the Consumer Price Index (CPI), fell to 0.5 per cent, its lowest since May 2000.

Although the weather will undoubtedly pick up as the brighter nights get closer and spring draws near, it is certainly unnerving as to when the oil price will.

Samantha Dolby is an investment manager at Brewin Dolphin and offers advice on a wide range of financial services to private clients, trusts, charities and pension funds. Past performance is not an indication of future performance. The value of any investment and any income can fall and you may get back less than you invested. No investment is suitable for all people and should you have any doubts you should consult an authorised financial adviser. The information contained in this article has been taken from public sources and is believed to be reliable and accurate, but without further investigation cannot be warranted as to accuracy or completeness. The opinions expressed in this article are not necessarily the views held throughout Brewin Dolphin Ltd. No director, representative or employee of Brewin Dolphin Ltd accepts liability for any direct or consequential loss arising from the use of this document or its contents.