And that “article” talks about a $600 million contract GE had for seven oil ships. Their total revenues were about $148 billion in 2014. I really don’t think a loss of a contract that size is going to affect anything.
If your underlying premise is that oil prices are bound to bottom and then rise again, why trade oil stocks? Why not use the Commodity Markets and buy oil or gasoline futures?
Why do that?
Because when you buy an oil stock, there are several other factors than just the price of oil. There are many factors that affect the share price of oils stocks like issues with management or the area in which the oil company operates.
If your belief is in the price or value of oil and not in the price or value of oil stocks, then buying oil futures is a direct play on the price of oil and not contaminated with all the other variables that can affect a single oil stock.
Also, to the poster who said, “I don’t short”, many people feel that way because when you buy an oil stock, the maximum you can lose is if the price of the stock falls to zero. But when you short a stock or commodity, your loss is theoretically unlimited if the price rises to astronomical heights.
But that is one of the reasons why it is easier to profit from selling short than it is from buying long. Many amateur investors are afraid to short sell. But anyone who just refuses to sell short is, in effect, selling themselves short.
By the way, when I said “amateur investor”, many people might take offense - saying they have been trading for many years and have made tens of thousands or hundreds of thousands of dollars in profits and so they can’t really be classed as “amateurs”.
But if you don’t trade stocks and/or futures for a living, if you are not a professional stock or commodity broker, then you are indeed an amateur - at least by one strict definition of the term.
At any rate, good luck to you.
I don’t think it will have Zero effect- I think it will be representative of losses in general in the oil space for GE. But yah, it isn’t going to kill the stock, only a cataclysm could do that to GE, I would’ve had at least 1000 shares bought below $15 if not for my freeloading ex-gf, dammit.
My underlying premise is in buying stocks long. I freely admit to being an amateur investor. I am sure I will grow into other strategies as time goes on, but for now you just gotta accept the premise that buying long is how I do it.
Well you can always make a “direct play” on oil by buying oil congracts long.
If you are worried about the level of margin, there are mini-contracts that enable you to buy 100 barrels of oil instead of 1,000 barrels.
There are two big advantages to trading oil commodity futures instead of oil stocks.
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The size of your profits or losses depend strictly on the price of oil. Nothing else matters. That is not the case with oil stocks.
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You can use a small amount of margin or a large amount of margin. It makes no difference to the broker. But it makes a big difference to you.
Actually, there is a third great advantage to trading commodity futures. That is that it’s much, much easier to rig the price of a stock. Many investors are cheated by people who rig the stock prices. But it’s almost impossible to rig the price of something that is traded world wide - like the price of oil or gasoline. Nobody will ever try to corner that market. Nobody will ever try to rig the price of oil somehow. Well, they may try. But they can never succeed. Talk to someone who is experienced with trading commodities to learn more. Perhaps that would be better than calling a broker. The broker has a strong interest in getting you to deposit $10,000 and open a commodity trading account with him. He won’t spend an hour telling you all about trading commodities. There are undoubtedly plenty of Internet sites that explain all about how it works.
But the point is that if O&G is 12% of GE’s revenue, then anything happening to that 12% can easily be swamped by what’s going on with the other 88%. So even if you’re right about when oil bottoms, you could lose (or at least fail to profit) because of what happened to the other 88%.
An important fourth reason (might be included in your first but worth noting separately) is that many people who believe the price of oil will rebound believe it will rebound when US production is significantly reduced. If you own options on oil, then you don’t care where that oil is produced. But if you own stock in a US oil company, then having the price of oil rebound because your company’s production has been significantly reduced might not help you.
I will look into it. How do you trade oil futures anyway? Is there a stock ticker and that’s it, or do I need to look up a particular exchange or what?
Besides that, as complicated as stocks can be, I still feel like stocks can be easier to call than the price of oil. Maybe it isn’t altogether rigged, but it can be hard to predict what is going to affect it. For example, Midwest Flooding Might Make the Oil Glut Worse. Or the rollout of the effects of the sudden lift of the US oil export ban, see here (note that one of my preliminary picks, ConocoPhillips, is right out of the gate taking advantage of this).
I see what you mean with oil futures being a ‘pure play’. OTOH, I have had my success investing long by identifying The Big Wave and riding it. After the recession it seemed like a good idea to invest in a stable, beaten-down bellwether. I didn’t call the bottom of that stock very precisely, but I rode it up for years. Same with alternative energy- all those stocks crashed, but between the tax credits and the constant reduction in costs for alternative energy, plus AGW, I was sure that the right company would bounce back, and it paid off big time.
I think there is a Big Wave coming once oil finally bottoms out. I can’t predict floods or OPEC actions or US government actions or what terrorists will blow up or what Russia will do next, but I think it will be obvious when demand outstrips supply, production drops, drilling picks up and oil companies swing from red to black. Picking the right time exactly will be best, but even if I am late to the party I can still ride the Big Wave.
What do ya think?
Recall the old adage “Buy on the rumor sell on the news”. The stock prices will have done most of their rapid rising before any of “…demand outstrips supply, production drops, drilling picks up and oil companies swing from red to black…” happens.
I think the “big wave” is an excellent strategy. Good luck.
You can trade futures through many of the standard retail brokers online - eTrade, Ameritrade, Schwab, etc. As far as order entry and position management, it’s very similar to stocks. Every platform has their own syntax, but for most the root symbol for WTI crude is “CL.” Following the root there will be a couple characters that indicate the expiration. Months are represented by letters and years by numbers. You can see all the currently trading contracts here. When people talk about the price of oil, they are usually referring to the nearest, “front” month contract, which is currently Feb 16 - CLG16. The contract represents 1000 barrels of oil, so a $0.01 change in price corresponds to $10 profit/loss per contract. You aren’t required to deposit the full value of the contract, rather you just need to post the margin required by your broker. For CL, most brokers will probably require something in the neighborhood of $4500 to $5000 per contract. If you do decide to trade futures, I suggest you familiarize yourself with concepts such as open interest, contract expiry and roll, and backwardation/contango.
Thanks everybody, I appreciate all the feedback I am getting on this. Even the snarky critics- really!
Re: oil futures, looking through the charts of the various contract dates, I can see why ‘short oil’ has come up so many times in this thread- it is total carnage! Down down down across the board! Anybody shorting these oil contracts over the last 6 months would have done quite well! (I’m assuming you can short these contracts…)
But… I don’t think I get it. Take March 2016. Ok, if I were to buy that contract, I would theoretically be promised 1000 barrels of oil in March. I’m one party to the contract, but who is the other party? Where is the oil, where does it come from, and how is it guaranteed to be delivered? What happens if, say, terrorist blow up crucial pipelines and there are more contracts outstanding than actual oil come March?
I get it that buying the contract is essentially a bet on the price of oil. Say I look at the chart and laugh out loud- “What? They want $38.17 for oil in March? Lulz, I am sooo certain it will be much higher than that, I better buy it and just sit tight for awhile.” Allright, I could follow through with that plan and if I’m right I could sell the contract again in 45 days for a profit.
But, with whom have I traded? How are the contracts fulfilled? Isn’t there something strange about owning a contract for delivery of 1000 barrels of oil when there is no way I could ever accept delivery of the oil?
I hope my questions don’t sound too dumb- I am a commodities trading noob.
Here are three sites that may help you.
The first one is not meant to insult you. It is the simplest overview that I know.
There are always people who want to buy long and people who want to buy short. Most of the people are either companies who are in the business of producing commodities or professional traders and money managers who make their money by trading.
It is often said that any consistent trading strategy will likely make money. But it is also often said that if you don’t have a good deal of money to back your trades, you can easily get wiped out by sharp market reverses.
You will probably be able to get much more accurate info from some of the above web sites instead of asking amateurs like myself. The above opinions are just that. Opinions.
I don’t think it would be wise for you to rely on peoples’ opinions if you are going to put your money at risk.
Much better for you to Google, “how to trade commodities” or other similar topics and read them for yourself and make your own decisions.
You may want to spend a period of time - like six months or a year - trading “on paper” - which means you just “pretend” that you have bought or sold something and keep a record of how much money you would have made or lost. If you can consistently make money “on paper” for a few months or a year, then you might want to think about trading for real.
Good luck.
I recommend you put all your money into BP stock.
Go big or go home! 
Well, today Oil hit ten year lows.
This is a real good time to get ready. I wouldn’t buy right away. I would give it a few days - just in case. Do you know what a “double bottom” is?
I would be on the lookout for a “double bottom”.
Either that or perhaps for a significant strengthening from here. Perhaps any one-week where the price consistently rises every day.
But, nothing is better than a “double bottom”.
Ultimately, your counterparty is the commodities clearinghouse run by the exchange. They make the market between buyers and sellers, insuring the price provides adequate liquidity for the contracts to move.
In the case of WTI traded on NYMEX, if you take delivery, it’s up to you to make arrangements for receipt of the oil at Cushing, OK. Generally this involves paying one of the many pipeline operators in the area, and/or arranging rail cars. NYMEX will get annoyed with you if you are not prepared to do this, so be very careful about closing your positions before expiry if you decide to trade futures.
Most of the volume in commodities is by speculators who don’t intend to take delivery; that’s fine, it keeps the market liquid. But there are real people there who intend to sell and buy oil (or whatever). The clearinghouse is responsible for netting all the contracts at the end of the month and figuring out how much oil everyone has to provide and how much everyone else gets. Futures contracts are standardized, but they all have settlement terms. (In the case if NYMEX WTI above, settlement is via Cushing, for example.)
Can you explain what “will get annoyed with you” means? After I hit the lottery on Wednesday, I plan on buying 100,000 barrels of oil, but not making any arrangements to do anything with them after delivery. What will happen?
Charlie Wayne, ladies and gentlemen! Making sense and contributing like a boss!
You won’t be allowed to hold the contract to expiration and take delivery. As the contract expiration date approaches there are a number of notices sent out to clearing firms and brokers warning them to close out contracts. Your broker will be required by their clearing firm to close out or supply instructions on delivery to the exchange. If no arrangement is made either the broker or clearing firm will close the contract at their discretion - and probably at a horrible price for you.
In the context of say, this chart, what would a double-bottom look like? Your double-bottom buy signal would be when oil rises to what price?
What’s causing the glut? Deliberate Saudi cartel-busting? Is there some political development which could reverse that?