I have had a long-standing rule against ever buying any oil stock. I have made tens of thousands investing in alternative energy and industrial/transportation stocks. I am not giving up on that thesis.
But. At some point, oil bottoms. At that point, if you are a short-term investor, it makes sense to trade oil stocks. You can sell them quickly for a 10% profit, or more slowly for larger gains.
Oil has gotta bottom at some point. The guys that call it can pretty much print money. I’d get on board this round, maybe not future rounds due to AGW. But this round, oil is gonna rebound, it pretty much has to.
I have the same idea. Have my eye on a couple of companies in particular and have started to build some savings for the purchase. Some of these companies’ stock prices are a miniscule fraction of what they were a couple of years ago.
I, like you, believe that they’ll rebound and that it’s only a matter of time. Trying to figure out where the bottom is could be difficult though. OPEC is maintaining their massive output, and analysts are saying that we could see $30 a barrel oil this winter, and that prices could be depressed well into 2017 or 2018.
Right, and global oil inventories are at a high, and growing. There is a possibility that US storage capacity will be reached, at which point there will be one less place for oil to go, driving down demand and pushing prices steeply lower. Keeping an eye out for oil storage to begin dropping is, IMHO (amateur alert!), a sign that oil is bottoming. Plus, obviously, when producers finally start to get squeezed out and overall production drops.
That’s the scary part. The producers that I have my eyes on are recovering oil in a more expensive method. The Saudi’s might just starve them to death after a couple of years and move on with fewer competitors.
So you’re saying that all you need to do to make massive amounts of money when investing is to figure out exactly when the price hits a low and then buy right before it starts increasing? Why, that’s so simple I can’t believe everyone isn’t doing it!
By way of example, one of the oil drilling industry’s leading drillers monetized all of his company’s hedges in Q3 of 2014, thinking oil wasn’t going any lower. In retrospect this is one of the all-time bad calls, oil having declined another 50% or more since that point. But he thought oil had bottomed at the time …
The market can stay irrational longer than you can stay solvent. Even if you’re convinced that oil stocks are absurdly over or under priced, that doesn’t mean a correction is coming along soon enough for you to profit from it.
Supply and demand. OPEC is pumping oil like mad to retain their market share, but nobody else wants to cut production. So we have a price war, one that seems extremely likely for the Saudis to win.
‘Winning’, for them, means exactly what others have been saying: higher-cost producers get forced by economic forces to cut production. It only takes about 2 million barrels a day to end the glut, then a little time to draw down stockpiles. Oil production can’t always be turned on and off like a switch- much of the time the wells have to be planned and drilled quite a ways in advance. Major oil companies are already cutting their capital expenditures, so a drop in production is pretty much baked into the cake. When that comes, assuming it lasts long enough, demand will again outstrip supply and prices will go up, along with the profits of surviving producers.
Something like that, I don’t know the exact number. You should invest in the S&P 500 IMHO- most of my 401k goes into an S&P 500 index fund, for instance.
But I am going to trade oil, not invest in it. Usually I invest, which to me means putting money into something for the long term, years or more. Trading is short-term. Some people buy and sell in the same day- I am not a day trader. But, when the bottom comes, I expect oil stocks to recover pretty quickly. So that 10% gain I mention comes in a 1 to maybe 6 month time frame. Compounded annually, it amounts to way more that 10%.
Meh, I just don’t short.
I do have a two-pronged strategy though. Take a look at US rig counts. They have dropped like a stone because oil companies are not investing much in new wells right now (but overall production hasn’t dropped much yet, apparently the most productive wells are still going). Once oil prices rebound that will change, and it should be a good time to invest in oil-services companies like, say, Schumberger. They are the guys who drill the wells and provide the equipment for a lot of producers.
It will take awhile for the new production to kick in. When it does, I expect at least in the beginning for this new oil to meet a thirsty market and that oil profits will spike. I’d want to trade the producers in this window, in-and-out like, before things have a chance to go south again.
Ha ha. Tell you what. I’m a good sport. You are cordially invited to point and laugh if I get burned.
I agree, it could take awhile before it is time to pull the trigger. Do you mind if I ask what stocks you are looking at? I’ll show you mine: I’m looking at Schlumberger, Chevron, Exxon, maybe Whiting, maybe Marathon. Total? I am still looking into it. The biggest names probably won’t deliver the biggest returns, but if 10% in 3 months is your thing, they very well may do it. I think I have some time yet to decide.