Author Topic: Oil Investing  (Read 4981 times)

MustacheAndaHalf

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Oil Investing
« on: August 18, 2020, 02:20:34 AM »
There's some overlap between corona virus and oil stocks which I think is worth investing in.

When people stay at home more, they consume less gasoline.  There are currently numerous travel restrictions between countries - travel is down heavily, and oil stocks are down heavily.  If there's a cure/vaccine for corona virus, transportation would recover and oil stocks would see increased demand.

Because of that, I've invested in some oil stocks as part of my investing in a recovery from corona virus.  My highest quality investment is in SPDR S&P Oil & Gas Exploration & Production ETF (XOP) call options.  An ETF contains numerous oil/gas company stocks, so it automatically diversifies the risk of any one company going under.

I suppose the question is after corona virus (whenever that is), should I hang on to oil stocks / options or cash out?

theoverlook

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Re: Oil Investing
« Reply #1 on: August 18, 2020, 09:18:42 AM »
I sold out of my limited oil stock exposure (about $25k in Shell) at what turned out to be just about the right time prior to the meltdown in oil stock prices. I sold out for reasons completely unrelated: I just don't see oil being as big a part of our economy long term as it has been. Oil is going to be in use for a very long time still, but its days of the end all be all source of energy are rapidly fading. Between solar power, electric cars, and natural gas fracking, I think demand is going to continue to decline compared to the pre-Corona numbers. It's still going to be a huge industry so now might be a major buying opportunity but in my opinion the long term view (10 years+) is dim.

ice_beard

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Re: Oil Investing
« Reply #2 on: August 18, 2020, 10:48:48 AM »
I'll re-post this to this thread.  I posted it last night in the Value Investing thread.


I have been digging through probably the most un-loved sector of the stock market, energy, since April.  I have seen nice returns (nothing like those 1:25,000 PE ratio "tech" stocks though, I'm looking at you TSLA) and suspect there are still some gains to be had and in some instances, quite significant gains, if you've got the stomach for it.

None of this is investment advice.  I am a nurse by trade.  These are simply personal observations.  Do your own research.

This market has many ups and downs and these are mostly LONG term plays with some occasional swing trades thrown in for fun.  If you cannot stomach large swings, this might not be a good market for you.   

My first-timer oil bull thesis of 2h 2020/2021...

Everyone knows oil cratered along with everything else back in March.  It even traded negative briefly, something that had never happened.  Fast forward to now and oil has essentially reached a plateau price point around $40-42 for West Texas Intermdiate crude (WTI) the N. American standard for trading.  It has been trading roughly at this level for a couple months.  Most US companies have either adjusted to this new norm through hedges, slashed capex budgets, shutdown of production, or have gone BK or will be doing so soon.  $40 is not good, but it's a lot better than $20 or $30.  Nobody really wants $40 oil, not US oil cos and certainly not Saudi Arabia, Russia or any of the other Middle Eastern and African countries whose national budgets are entirely dependent upon the price of oil.  There has been and will continue to be a balancing act where all players will try to find that sweet spot for production and price.  Some countries can produce for incredibly cheap prices (Saudi Arabia) while others cost a lot more (Canadian tar sands, offshore deep water) for examples.

In North America, the big players with the best balance sheets, like CVX, will/have weathered this crappy price storm reasonably well and will pick up valuable assets at pennies on the dollar.  Chevron already has, they bought Noble Energy a few weeks ago and Noble apparently has some pretty valuable assets.  Problem is, everyone has known since the beginning of this shitshow that Chevron was probably the best situated of the majors and hence, their price has reflected this knowledge, i.e. there isn't as much room for gains compared to some others...

Second tier companies that have solid balance sheets offer what I believe is strong value too.  DVN is a company I follow.  This stock was trading at 2x+ its current value pre-Covid and in some circles is considered a strong contender for being bought out.  It was trading for as low as $5 in March.  There are smaller players too and not all are dangerously leveraged.  PVAC is my personal favorite.  It traded for as low as $.99 back in March but now trades in the $13 neighborhood but was trading for $8 less than a month ago.  Their 52w high is $37 and their PE ratio is 1.63.  It has a small float so when it runs it runs, also fun to swing trade.  Ooooh to have some of those $0.99 shares!!!

Then there are the seriously leveraged (in debt) companies...  Leverage isn't a bad thing if your assets are valuable.  If the land you own rights to has questionable quality for drilling, then your assets aren't as good as having well sites in known profitable plays.  When debt repayments are due is also of critical importance to oil/gas companies.  Imagine generating debt-killing cash flow with $42 barrel oil vs. $75/barrel oil (when your cost per barrel is running around $35/barrel).  Most oil cos have been trying best they can to get their debt repayments either refinanced or moved back a year or two.  Smaller players with shakier finances (again think about the value of a companies assets, how many barrels a day can they produce at what price, the banks and analysts know this information!) are having a much more difficult time getting these debt payments moved back.  CPE is an example here.  They have reportedly some quality assets but they acquired a company last year that cost them a lot.  Their stock is trading at a massive discount right now.  If they make it through the next year or so and the price of oil eventually makes it back up to $75 or greater, this stock could be a multi-bagger.  Or they could go bankrupt or you could sell after watching your cash evaporate.  How long can you wait and how strong is your stomach??  ;-)

Now for some real leverage... I was critical of Occidental Petro (OXY) back when I started a dumpster diving thread in April.  They had an untimely acquisition in 2019 that is now worth significantly less than what they paid for it.  Again, price of oil is EVERYTHING, it is a commodity after all.  OXY has roughly 40b(!) in debt with a current mkt cap around 13b.  They released incredibly terrible 2Q earnings last week (nearly every oil co. had a terrible 2nd q, imagine that) and their stock has been/is getting hammered.  It has been trading around $13-14 the past few days and has traded as high as $87 in the past few years.  They wrote off 8b in assets last quarter and are in the process of selling off some of their current assets which might net them 4-5b to cover some debts.  There largest debt payments aren't due until late 2021, hence the asset sales.  OXY says they are profitable at $35 right now.  They slashed CapEx spending, management pay and their sacred cow dividend is now down to 1 cent.
This is where that plateaued price of ~$40 comes back into play...  Assets are now being re-priced at this critical level of $40-45 oil and even at that price, OXY has a LOT of assets that are worth a lot of money and because of their size, they generate a lot of cash flow.  The next couple quarters are going to make or break OXY.  Institutional investors have been buying and selling their stock recently.  I have been buying while it is in the $13-14 neighborhood.   

But, but batteries and E-cars you might say!!  I'm all for a less carbon dependent future, but in the United States and in developing nations, there will be a lot of oil and natural gas that will be consumed over the next few decades.  I would even be fine with this investment going south if I am completely wrong about electrification of transportation because I think it would be better for the environment and life on earth in general.  I just don't think it's going to happen in the time frame a lot of people are thinking.  And yes, I know Norway has like 60% electric vehicles....that's Norway, possibly the wealthiest country on the planet.  Do you think people in India will be buying an electric cart that costs twice what a gas or diesel burning tuktuk does and count on an unreliable electric grid to be sure it's charged every day??  I'd actually love to be wrong.  I'm convinced there will be a (long) transitional period and during that time there will be a need for oil and gas.

Which conveniently brings me to perhaps the most important component of this thesis.  There is increasing discussion regarding an upcoming supply crunch on oil.  Look at rig counts across North America (there are usually 500+ rigs out completing new wells during "normal" development times.  The rig count is down to something like 75 right now.  This is the case internationally as well.  Exploration and opening of new wells has ground to a standstill the past four months.  The pipeline, if you will, of oil ready to be delivered is limited.  It takes time and money to bring new sources of oil online, it doesn't happen immediately.

If oil use continues its steady increase and draws on current supplies continue to grow (US weekly draw is released every Tuesday after market close).  Eventually usage will be outstripping existing supply and production and prices will rise.  This was eluded to earlier in this thread, O/G follows a rather familiar pattern and we are in the production trough where prices are depressed and production is down.

Then there is the whole cyclical rotation within the stock market thing... How long can tech stocks continue to carry the market?  Some speculate that as investors cool on currently hot sectors (tech, other potentially overbought Covid favored sectors) investors will be looking for areas of opportunity and oil and gas/commodities actually look better than some of the other out of favor segments.  Remember that $40 price floor?

There are several segments within Oil and gas as well, I won't go into all of those specifics, but another, possibly safer option for some O/G exposure is to own a services firm like SLB , BKR or HAL.  I like SLB and their stock is trading at a significant discount now.  There are midstream providers (think pipelines and distribution services) like ET, OKE and MMP.  There are pure natural gas companies and then there are the TANKERS!!

If you have been in O/G for a long time, you are probably like oh, no thank you!  But if you've never owned oil or gas companies, there have probably been much worse times to get in.

Maybe tomorrow I'll write up my oil tanker thesis... actually it's not my thesis, but there are some compelling arguments for owning oil tanker stocks over the next year or longer.  If you want to do homework, start by looking up DHT, EURN, FRO, STNG (but not NAT).

waltworks

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Re: Oil Investing
« Reply #3 on: August 18, 2020, 12:03:09 PM »
The entire oil industry is a boom/bust thing. It always has been, and it's not very predictable (my FIL runs a big company that sells equipment for oil extraction so I have had the "opportunity" to hear all about it in great detail over the last 20 years of family reunions/holidays/etc).

I would not touch oil or oil company speculation with a 10 foot pole, personally.

-W

trollwithamustache

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Re: Oil Investing
« Reply #4 on: August 18, 2020, 12:34:25 PM »
The entire oil industry is a boom/bust thing. It always has been, and it's not very predictable (my FIL runs a big company that sells equipment for oil extraction so I have had the "opportunity" to hear all about it in great detail over the last 20 years of family reunions/holidays/etc).

I would not touch oil or oil company speculation with a 10 foot pole, personally.

-W

This. Oil Booms and Busts. Hard. It is not clear we are done with the depths of Bust.  Watch the debt levels and How They Hedge. There are hedged companies going bankrupt because oil dropped below the hedge floor and now they owe money on that!

Car Jack

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Re: Oil Investing
« Reply #5 on: August 18, 2020, 04:35:22 PM »
The S&P has Exxon/Mobil and Chevron.  Just buy that. 

I'll also propose that you know nothing about how the stocks are going to fare.  I don't either.

use2betrix

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Re: Oil Investing
« Reply #6 on: August 18, 2020, 06:14:24 PM »
One thing to keep in mind that oil didnít just crash due to coronavirus. It crashed weeks before, due to a spat between Russia and Saudi Arabia about reducing output, and in turn they started flooding the market. That crashed the oil prices more than the coronavirus did.

MustacheAndaHalf

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Re: Oil Investing
« Reply #7 on: August 19, 2020, 10:25:16 AM »
One thing to keep in mind that oil didnít just crash due to coronavirus. It crashed weeks before, due to a spat between Russia and Saudi Arabia about reducing output, and in turn they started flooding the market. That crashed the oil prices more than the coronavirus did.
I didn't know there was any dispute that Covid-19 impacted oil.  Quoting the International Energy Agency (IEA):
"As a consequence of global lockdown measures due to the Covid-19 crisis, mobility Ė 57% of global oil demand Ė declined at an unprecedented scale in early 2020."
https://www.iea.org/topics/covid-19

bigblock440

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Re: Oil Investing
« Reply #8 on: August 19, 2020, 01:48:47 PM »
One thing to keep in mind that oil didnít just crash due to coronavirus. It crashed weeks before, due to a spat between Russia and Saudi Arabia about reducing output, and in turn they started flooding the market. That crashed the oil prices more than the coronavirus did.
I didn't know there was any dispute that Covid-19 impacted oil.  Quoting the International Energy Agency (IEA):
"As a consequence of global lockdown measures due to the Covid-19 crisis, mobility Ė 57% of global oil demand Ė declined at an unprecedented scale in early 2020."
https://www.iea.org/topics/covid-19

There isn't, betrix is saying that covid wasn't the only reason, and possibly not even the major reason.  Or is your dispute that the Russia-Saudi overproduction didn't impact the prices?

Full_Beard

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Re: Oil Investing
« Reply #9 on: August 19, 2020, 06:06:03 PM »
I agree with Waltworks and even if I didnt, the oil & gas industry is so distasteful, I find it hard to selectively invest in it. Yes, I drive a car and own SP500 index funds, so I'm not going ballistic. But I also wouldn't buy directly tobacco stocks. Besides, there are plenty of other companies that have far better records and aren't oil and gas. Visa and Costco, to name two.

MustacheAndaHalf

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Re: Oil Investing
« Reply #10 on: August 20, 2020, 02:00:18 AM »
Saudi's overproduced 3 mb/d, and the global oversupply was 29 mb/d, or an order of magnitude greater.  The lack of demand during Covid-19 was far more significant than the Saudi-Russia price war.

https://en.wikipedia.org/wiki/2020_Russia%E2%80%93Saudi_Arabia_oil_price_war
"On 10 March, Saudi Arabia announced that it would increase its production from 9.7 million barrels per day to 12.3 million"
https://www.iea.org/reports/oil-market-report-april-2020
"Demand in April is estimated to be 29 mb/d lower than a year ago"

waltworks

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Re: Oil Investing
« Reply #11 on: August 20, 2020, 07:54:36 AM »
So put your money down, tell us all about it, and take your licks or make big $. Lots of people follow the oil market a lot more carefully/deeply (many of them with insider information which is pretty standard in the industry). What makes you think you're going to beat them by reading the newspaper and doing some armchair analysis?

I personally think it's 1) a bad idea, 2) a distasteful idea (though of course I own some oil stocks as part of my index funds), and 3) a waste of your time, unless you like to invest as a hobby or something.

-W

use2betrix

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Re: Oil Investing
« Reply #12 on: August 20, 2020, 01:03:11 PM »
Saudi's overproduced 3 mb/d, and the global oversupply was 29 mb/d, or an order of magnitude greater.  The lack of demand during Covid-19 was far more significant than the Saudi-Russia price war.

https://en.wikipedia.org/wiki/2020_Russia%E2%80%93Saudi_Arabia_oil_price_war
"On 10 March, Saudi Arabia announced that it would increase its production from 9.7 million barrels per day to 12.3 million"
https://www.iea.org/reports/oil-market-report-april-2020
"Demand in April is estimated to be 29 mb/d lower than a year ago"

Oil Prices opened this year around $60/barrel and dropped below $30/barrel by March 10th. That was weeks before anyone really knew how big of a deal Covid would turn into, especially in the U.S. While it did crash harder by the end of April, Covid is as bad now as it has ever been in the U.S. (in many aspects), and itís still at around $43/barrel.

I certainly agree that Covid as a whole has hurt it more in terms of demand, but looking strictly at oil prices in comparing the two events, it makes the Russia/Saudi Arabia spat look as significant, if not worse.

MustacheAndaHalf

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Re: Oil Investing
« Reply #13 on: August 20, 2020, 09:18:44 PM »
use2betrix - I appreciate that you're using specific information about oil prices to back up your point.

China started it's lock down on Jan 23, with WTI Brent at $55.59/barrel (oilprice.com) and a week later imposed travel restrictions, reflected in WTI Brent at $50.19 on Feb 3.

I show Brent WTI at $41.46 on March 6 (Fri) and then $34.36 on March 10 (Tue).  Besides the oil price war, Italy had just begun it's lock down.

And then Brent WTI fell further in March, dropping to $20.09 on March 30.  It fell even further to $11.57 on April 11, which looks like the low point (ignoring the fluke of a few negatively priced contracts).

Covid-19 reduced oil demand to the point that land-based oil storage reached capacity, but OPEC+ still refused to stop overproducing.  The U.S. intervened by threatening to leave Saudi Arabia completely undefended if it didn't stop, and that triggered OPEC+ negotiations that cut oversupply (to ~20 mbd oversupply if I recall correctly).

Most of the price change doesn't appear to have happened around Saudi Arabia's announcement of a price war, but rather when China, Europe and the U.S. locked down.


waltworks - I hoped for more than personal opinions.  I do not sit in an armchair reading a newspaper.

waltworks

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Re: Oil Investing
« Reply #14 on: August 20, 2020, 10:29:47 PM »
All the information you've posted is public knowledge, though, right? Why do you have special insight into an industry that lots of people devote their professional lives to/gather info on/invest in? The armchair comment was tongue in cheek, as I'm guessing you realized (unless maybe english isn't your first language, in which case I apologize), but it's true - you're an amateur who is taking macro level opensource/newspaper information (unless you've started subscribing to the various expensive oil industry pubs that exist out there and/or hired on at an oil company) and drawing conclusions.

-W


MustacheAndaHalf

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Re: Oil Investing
« Reply #15 on: August 21, 2020, 09:23:06 AM »
use2betrix - I probably should have summarized the price movements in my earlier post.

During the first week China locked down, oil prices fell -10%.  With Saudi Arabia's news priced in on March 10, oil prices fell another -40% between March 10 and March 30.
Those drops correspond to lock downs rather than events in the oil price war.

---
The entire world wants to be done with Covid, and a global effort is being made by medical researchers to come up with treatments and vaccines.  To me, that means a recovery from Covid is very likely.  As shown above, oil prices tracked closely with Covid lock downs.  Oil demand dropped, so oil prices dropped.

I believe it's very likely oil demand will continue following Covid.  In the event a recovery is made from Covid, oil demand will recover as well.

The energy sector, including oil and gas, has been doing badly for some time.  So I also view it as a value investment.  The gap between value and growth is at historic levels.  To me, that suggests a reversion to the mean is much more likely than the gap staying historically wide.

So I'm essentially viewing return to normal as an investment.  If value/growth are at a historic gap, energy stocks are doing historically badly... maybe at some point that trend reverses, with a reversion to the mean.  I'm not saying that happens next month, but over the next couple years it seems more likely to happen.

PaulMaxime

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Re: Oil Investing
« Reply #16 on: August 21, 2020, 10:04:34 AM »
I think you might be able to make a few short term dollars investing in oil companies. But long term the trend is against you. Solar power is now the cheapest form of power generation. Utility scale battery storage means that solar can work 24/7.

Exxon Mobil recently cut its employees 401K match so they can keep paying their dividend. How long is that going to work? BP is publicly talking about no longer exploring for new sources of oil. All that oil under the Falklands is now a stranded asset.

Sure oil will continue to be a huge part of our energy usage but we've hit peak oil and it ain't coming back. These companies have huge investments in refineries and drilling facilities that will eventually just have to be idled and shut down. A small drop in demand and price will be catastrophic for their profits. We are already seeing this and COVID just accelerated what was already obvious to anyone who really looked at the problem.

I don't short stocks but if I did I'd short big oil. I do track stock picks on Motley Fool Caps. I virtually shorted XOM in 2017 and a bunch of other Oil and Coal and Auto companies since then. So far this has been a virtual money maker for me and I expect it to continue.

https://caps.fool.com/player/dolonaltekar.aspx

Scandium

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Re: Oil Investing
« Reply #17 on: August 21, 2020, 01:56:48 PM »
I believe it's very likely oil demand will continue following Covid.  In the event a recovery is made from Covid, oil demand will recover as well.

So will all stocks.. What makes you think:
a) oil will recover more than the market
b) you're the only one seeing this, so it's not already priced in?

trollwithamustache

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Re: Oil Investing
« Reply #18 on: August 21, 2020, 02:33:10 PM »
I'm gonna put this here for you lads and ladettes to nosh on.

www.energynet.com

I suspect you want to buy oil companies and not direct ownership in the leases because you don't know how to value the direct ownership...

maisymouser

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Re: Oil Investing
« Reply #19 on: August 21, 2020, 05:07:26 PM »
I agree with Waltworks and even if I didnt, the oil & gas industry is so distasteful, I find it hard to selectively invest in it. Yes, I drive a car and own SP500 index funds, so I'm not going ballistic. But I also wouldn't buy directly tobacco stocks. Besides, there are plenty of other companies that have far better records and aren't oil and gas. Visa and Costco, to name two.

This- even if I knew for a fact I would get a good return I would have a hard time justifying to myself that it is "worth it" to specifically and intentionally invest in nonrenewable energy companies. I hear ya OP, you don't want personal opinions- but considering that environmentalism and creating a more sustainable world is one of the key tenants of the MMM ideology I feel it is completely reasonable for @Full_Beard and @waltworks to point this out.

MustacheAndaHalf

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Re: Oil Investing
« Reply #20 on: August 22, 2020, 01:12:45 AM »
https://www.iea.org/reports/global-ev-outlook-2020
"Electric cars, which accounted for 2.6% of global car sales and about 1% of global car stock in 2019, registered a 40% year-on-year increase"

Literally 99% of cars in the world run on gas, not electricity.  I understand people's hopes for the future, but that future is much farther away according to the numbers.


Avoiding oil stocks has no impact on oil companies.  To those who think it's environmental to convince others not to buy oil stocks, that will have no impact.  Meanwhile, all of us read and reply on a forum run on electricity.  In the U.S., 70% of electricity is produced by petroleum and natural gas.  The oil & gas industry is making a very tiny profit off our electricity usage, and ignoring anyone who avoids buying oil & gas stocks.
http://css.umich.edu/factsheets/us-renewable-energy-factsheet
(Similar for 2019, but I prefer a University source of an industry source in this case)



MustacheAndaHalf

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Re: Oil Investing
« Reply #21 on: August 22, 2020, 01:50:01 AM »
I believe it's very likely oil demand will continue following Covid.  In the event a recovery is made from Covid, oil demand will recover as well.
So will all stocks.. What makes you think:
a) oil will recover more than the market
b) you're the only one seeing this, so it's not already priced in?
It's not accurate to say all stocks will recover.  Amazon, Netflix and Zoom have all done much better during lock downs, and should lose business during a Covid recovery.

Even limiting to only stocks that haven't recovered, they are down different amounts.  Assuming recovery means returning to 52 week highs, Dine Brands stock (DIN) would almost double from here, while Macy's (M) would almost triple.  Different stocks are down by different amounts, which dramatically impacts their recovery.

---
Year to date (YTD), Vanguard Growth ETF (VUG) is up +17%.
Vanguard Value ETF has dropped, giving a -15% YTD performance.
SPDR S&P 600 Small Cap Value ETF (SLYV) is even worse, at -26% YTD.

Most of the financial news concerns how tech stocks are performing - Apple breaks $2 trillion market cap, or Tesla's 390% YTD return.  And from the above value vs growth performance, anyone chasing performance will be ignoring value.  I've read a couple places that growth and value are at historically wide gaps.  So I think the focus isn't on value stocks, which means it's a less crowded place to invest right now.


Many companies have dramatically lower revenue right now, which is reflected in their stock prices.  Their revenue drop is priced in.  There's also a risk of bankruptcy, which is why I've diversified across dozens of stocks.  If both Congress and the Fed end relief efforts too soon, it would very likely result in a wave of bankruptcies.  So there's a lack of revenue and only government relief keeping company's from going under.

On the flip side, I've repeatedly watched stocks react to vaccine news.  When Moderna started stage III testing, Macy's stock shot up +17% in one day (Moderna's own stock only rose +5%).  Covid sensitive stocks have reacted very strongly to vaccine related news, and I expect more of that news in the next 1-2 months as stage III trials are completed.

Overall I expect recovery profits will outweigh bankruptcy losses.  One flaw might be if that's less true of the energy sector than of the rest of the economy.

NN6

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Re: Oil Investing
« Reply #22 on: August 22, 2020, 03:27:53 AM »
@MustacheAndaHalf I think your reasoning does make a lot of sense for value stocks but I just don't see the case for Oil. If you believe in a vaccine and quick recovery to normal I think Airlines and Cruiseships should be your best bet. If not or you want to be more conservative (like me) I wouldn't touch oil either. For me, as also previously mentioned by others, I am not comfortable with the whole oil industry anyways (maybe due to the fact that I work in renewables) but I honestly believe also from a money perspective that there are better things to buy out there.

MustacheAndaHalf

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Re: Oil Investing
« Reply #23 on: August 22, 2020, 04:46:02 AM »
Only a fraction of my portfolio is invested in individual stocks/options, and a smaller fraction of that is invested in oil & gas.  Vanguard Total Stock Market ETF (VTI) holds 2.4% oil & gas stocks.  Meanwhile my oil picks are 6% of my portfolio, or about 2.5 times the U.S. market weight.  So when I talk about oil investing, I'm talking about 6% of my portfolio.

NN6 - Investing in just airlines and cruise lines lacks diversification in my opinion.  That's why I tried to find stocks in different areas of the market, even if those stocks haven't fallen as far.  I'm seeking to balance the profits from a recovery with diversification from buying unrelated stocks.  Since oil & gas stocks have fallen on hard times, and are a sector of the market, it makes sense to have some exposure.

MustacheAndaHalf

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Re: Oil Investing
« Reply #24 on: September 30, 2020, 11:46:09 AM »
An update: Oasis Petroleum just filed for bankruptcy, which was one of my oil stocks.  Of dozens of stocks, both bankruptcies were in oil stocks.

To to those in this thread who suggested oil stocks are a bad investment... yup!

Maybe some of the bankruptcy risk was priced in, as the stock fell -35% today.  I'm surprised I can walk away from bankrupt companies with some of my investment intact, but that's been my experience both times.

Rob_bob

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Re: Oil Investing
« Reply #25 on: September 30, 2020, 07:33:29 PM »
An update: Oasis Petroleum just filed for bankruptcy, which was one of my oil stocks.  Of dozens of stocks, both bankruptcies were in oil stocks.

To to those in this thread who suggested oil stocks are a bad investment... yup!

Maybe some of the bankruptcy risk was priced in, as the stock fell -35% today.  I'm surprised I can walk away from bankrupt companies with some of my investment intact, but that's been my experience both times.

I don't think all oil stocks are going bankrupt.  Depends on the quality of the company and what their niche is.

maisymouser

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Re: Oil Investing
« Reply #26 on: September 30, 2020, 08:29:58 PM »
An update: Oasis Petroleum just filed for bankruptcy, which was one of my oil stocks.  Of dozens of stocks, both bankruptcies were in oil stocks.

To to those in this thread who suggested oil stocks are a bad investment... yup!

Maybe some of the bankruptcy risk was priced in, as the stock fell -35% today.  I'm surprised I can walk away from bankrupt companies with some of my investment intact, but that's been my experience both times.

Thanks for sharing! Most people aren't willing to post failures in their investment choices. And I had no idea you could recover investments in bankrupt companies.

norajean

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Re: Oil Investing
« Reply #27 on: October 01, 2020, 04:21:02 AM »
Business travel and commuting to work may never return to pre COVID levels and thus we may have already seen peak oil demand, as suggested by BP, Oversuppply could depress prices for a long time. Rig counts are low but shale drilling can be resumed almost overnight so supply will follow demand.

In addition to the demand reality, the perception of the industry will depress stock prices regardless of profits and the fact we will all be using oil and gas all our lives in a very slow transition to other energy sources.

I hope oil prices rebound to $200 and people drive even less than today, but I donít see it happening.

markbike528CBX

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Re: Oil Investing
« Reply #28 on: October 01, 2020, 07:06:18 AM »
An update: Oasis Petroleum just filed for bankruptcy, which was one of my oil stocks.  Of dozens of stocks, both bankruptcies were in oil stocks.

To to those in this thread who suggested oil stocks are a bad investment... yup!

Maybe some of the bankruptcy risk was priced in, as the stock fell -35% today.  I'm surprised I can walk away from bankrupt companies with some of my investment intact, but that's been my experience both times.

Thanks for sharing! Most people aren't willing to post failures in their investment choices. And I had no idea you could recover investments in bankrupt companies.

OBELF (was OBE, PWE) Canadian oil, my investment -99% from 2005
TK  oil tanker (with subsidiary LNG tanker) investment -99% from 2005
« Last Edit: October 01, 2020, 07:09:59 AM by markbike528CBX »

MustacheAndaHalf

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Re: Oil Investing
« Reply #29 on: October 01, 2020, 08:30:00 AM »
I suspect my earlier bankruptcy was helped by Robinhood investors flocking to a stock after it went bankrupt.  Back then, the price dropped on bankruptcy news.. and then started moving upwards.  Very odd, but the same thing happened with Hertz, where it was traced to Robinhood investors.

One interesting downside of options vs stocks:  with stocks, I've escaped with a partial loss.  But most bankruptcies take the stock price well below option strike prices, making them lose value much faster.  Options in a bankrupt company are much more likely to be a total loss.

I agree not all oil companies will go bankrupt.  I have call options on two oil stocks and an oil-themed ETF.  An oil ETF offers better diversification than individual oil stocks, although both are still entirely exposed to the oil sector - so most of my portfolio is elsewhere.

My assumption is during a recovery from corona virus, oil demand will also recover, bringing a partial recovery to the oil industry.  But as norajean's post mentions, oil stocks could also continue falling for years.

ChpBstrd

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Re: Oil Investing
« Reply #30 on: October 01, 2020, 11:51:43 AM »
Oil is certainly not an inspiring business. A future in which millions of people either work from home or commute in electric cars is seemingly inevitable. I can think of only four upside scenarios for oil:

1) A Middle East war. SA vs. Iran, Iran vs. Israel, or an all-in blitz on Yemen are possibilities.

2) Russian colonization of Venezuela, Syria, and whoeverís next (Brazil?) could create a competitor to OPEC. If this Russian-controlled bloc could cooperate with the Iran/Iraq bloc, the Saudis might fall in line with a plan to crush U.S. or peripheral producers whenever they get too big. In other words, with pricing power concentrated in the hands of just a few leaders, the old defection problems faced by OPEC could be mitigated. Oil investments in any other country would be subject to a higher cost of capital, due to the threat of this newly concentrated cartel.

3) Inflation in the US is allowed to run wild for a couple of years, hitting 5.5% in 2022. Commodities of all types boom in value.

4) Several years of low investment in exploration eventually leads to another oil shortage/ price boom, as has always happened before.

MustacheAndaHalf

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Re: Oil Investing
« Reply #31 on: October 01, 2020, 10:14:32 PM »
ChpBstrd - A future filled with electric cars is decades away.  Electric cars are a tiny percentage of the car market, which itself is a fraction of overall oil consumption.

When Iraq invaded Kuwait, the U.S. went to war with Iraq.  Wouldn't Russia invading an oil-rich South American country be treated similarly?

Where are you getting 5.5% inflation (scenario 3)?

ChpBstrd

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Re: Oil Investing
« Reply #32 on: October 02, 2020, 11:44:18 AM »
ChpBstrd - A future filled with electric cars is decades away.  Electric cars are a tiny percentage of the car market, which itself is a fraction of overall oil consumption.

When Iraq invaded Kuwait, the U.S. went to war with Iraq.  Wouldn't Russia invading an oil-rich South American country be treated similarly?

Where are you getting 5.5% inflation (scenario 3)?

It's true that EVs account for only 2.6% of vehicle sales now, but a 2.6% drop in demand in each of the next several years would resemble a minor recession for oil every year for the foreseeable future (most EVs are only a few years old and so the vast majority of those sales are replacing ICE vehicles). The 2008 recession caused about a 10% drop in demand for barrels of oil, and that was enough to cause the price to go from $150 to $35. What will a 10+% drop in demand over the next four (2.6% X 4) years do? And that would be a worst-case scenario where EV sales stay flat from now on.
https://www.forbes.com/sites/michaellynch/2018/01/22/the-effect-of-the-coming-recession-on-the-oil-price/#4b08840d33a9

However.... per the IAEA, sales of EVs increased 40% from 2018 to 2019, so that small 2.6% percentage of car sales number could grow faster than in the past.
https://www.iea.org/reports/global-ev-outlook-2020
And the price of lithium ion batteries have been falling for at least a decade.
https://www.statista.com/statistics/883118/global-lithium-ion-battery-pack-costs/
EVs are getting cheaper and better at a faster rate than ICE vehicles. Even at today's price/performance point, supply seems to be the bottleneck, not demand. Clayton Christensen had a few things to say about this dynamic in The Innovator's Dilemma.

Russia quietly colonized Venezuela in 2019. They have at least a few hundred troops on the ground, and buy discounted oil from Venezuela. The deal is they help protect Maduro from a coup and allow Venezuela to evade sanctions on oil sales in exchange for a growing military presence. Becoming a Russian colony was the best way Maduro could avoid being deposed, just as it was for Bashar al-Assad in Syria (another recent Russian colony). Belarus is next. https://www.vox.com/2019/3/27/18283807/venezuela-russia-troops-trump-maduro-guaido

5.5% inflation was an unlikely 2-year hypothetical that could boost the price of oil. Had to reach for that one. Although it is technically possible I doubt it.

MustacheAndaHalf

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Re: Oil Investing
« Reply #33 on: October 04, 2020, 08:00:24 AM »
"And that would be a worst-case scenario where EV sales stay flat from now on."

You consider it impossible for EV sales to drop?  That doesn't sound realistic - to rule it out entirely.
 Right now gasoline prices are low, making ICE vehicles more competitive with EV.

I notice you dropped a key part of the quote from iea.com:
"Electric cars, which accounted for 2.6% of global car sales and about 1% of global car stock in 2019, registered a 40% year-on-year increase."

After you buy a car, it still consumes fuel.  You can't cite "global car sales" and ignore "global car stock" in calculating demand.  EV demand is only 1% of cars - and cars aren't the whole story.  Oil is also important for airline, boat and truck fuel.  Overall, EV has an insignificant impact on oil demand right now - far less than 1% when you consider all sources of oil demand.

waltworks

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Re: Oil Investing
« Reply #34 on: October 04, 2020, 09:18:23 AM »
The point is that there are lots of plausible scenarios for oil to crash forever... or to skyrocket. EVs might have no impact for 50 years. EVs might kill oil forever. Iran and Saudi Arabia might nuke each other. Or both, or neither.

Just because you can tell yourself a good, logical story doesn't mean it will happen. Predicting the future, it turns out, is really hard.

-W

MustacheAndaHalf

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Re: Oil Investing
« Reply #35 on: October 04, 2020, 09:42:07 AM »
The point is that there are lots of plausible scenarios for oil to crash forever... or to skyrocket.
No, as the author of this thread, that's not the point.  The point is discussing oil investing.  If you disagree, you don't have to participate.

waltworks

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Re: Oil Investing
« Reply #36 on: October 04, 2020, 09:48:17 AM »
I was referring specifically to the discussion between you and @ChpBstrd about EVs, sorry for the confusion.

-W

TomTX

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Re: Oil Investing
« Reply #37 on: October 04, 2020, 07:53:30 PM »
I'm gonna put this here for you lads and ladettes to nosh on.

www.energynet.com

I suspect you want to buy oil companies and not direct ownership in the leases because you don't know how to value the direct ownership...

Oh, hell - a noob should NEVER get into leases.

Couple of guys at work (reasonably well paid, single) - decided to buy into some oil leases about 5 years ago. Got all excited about it, then over months the talk died off. Never even made their investment back.

UnleashHell

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Re: Oil Investing
« Reply #38 on: October 05, 2020, 05:31:48 AM »
Oh yeah. leases. its where the money is at. I bought into a company that plummeted after deepwater horizon. They had a bunch of leases in the gulf and there was no doubt that they'd make a fortune as soon as drilling reopened.
They didn't have enough cash to get themselves through the ban.
I lost the lot.
lesson learned.

theoverlook

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Re: Oil Investing
« Reply #39 on: October 06, 2020, 07:49:52 AM »
ChpBstrd has a very good point, which is that it only takes a small change in oil demand for oil prices to change wildly and thus oil stocks to increase in volatility. When supply and demand have to be matched so well it's easy for one to cause the other to fluctuate very quickly. So a few percent of vehicles converting to EVs will cause at least the portion of oil that transportation uses to quickly reach and oversupply and prices will drop.

It's theoretically possible for EV sales to decrease. It's also possible that everyone will stop buying cars altogether and we'll switch 100% to remote visitation, seems about as likely to me. As a die hard "car guy" (5 cars, from 1970 to 2016 right now) with a relatively recent EV purchase (Well, series hybrid Chevy Volt), I see the writing on the wall for new ICE cars. It's going to happen sooner or later, and with Tesla teasing a $25k electric car, it just might be sooner.

I still just don't think oil stocks are going to outperform the market over any sort of long term timeline.

JoeV914

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Re: Oil Investing
« Reply #40 on: October 06, 2020, 08:32:20 AM »
Whatíre thoughts on investing in an oil fields?

MustacheAndaHalf

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Re: Oil Investing
« Reply #41 on: October 06, 2020, 09:25:39 AM »
Overall I'm still well ahead on oil stocks.  Back at the end of march, my two largest individual stock investments were my riskiest - one of them was an oil REIT.  I suppose that's one way to get exposure to oil fields, but since that specific stock recovered rather well already, I no longer hold it.

Notice we don't have 99% of posts talking from combustion vehicles point of view, even though 99% of the cars in the world are gasoline fueled.  That can lead to EV centered views reinforcing each other, which can be bad for accurate predictions.  (Good for the environment, though :)

ChpBstrd

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Re: Oil Investing
« Reply #42 on: October 06, 2020, 11:48:42 AM »
The thing is, we canít buy the oil profits from 20 years ago, or even 5 years ago. We can only buy whatever profits or losses the future provides. The future certainly might look like the past, but why place that bet, with all its downside, in a world full of investment opportunities that are not misaligned with technological, political, and cultural forces?

To be more concrete, why buy an oil stock that might declare bankruptcy in a year unless prices improve, when you could buy a regional bank with a single-digit PE, a 5% yield, and a decent chance of attracting a merger offer? Or profitable REITs yielding 4-8%? Or solar panels and insulation for your home, yielding a 6-7% ROI? Etc.

waltworks

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Re: Oil Investing
« Reply #43 on: October 06, 2020, 11:58:22 AM »
Based on other threads, OP just sort of can't help him/herself. But it's better than going to the track or casino, so c'est la vie.

-W

PaulMaxime

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Re: Oil Investing
« Reply #44 on: October 07, 2020, 07:25:35 PM »
The thing is, we canít buy the oil profits from 20 years ago, or even 5 years ago. We can only buy whatever profits or losses the future provides. The future certainly might look like the past, but why place that bet, with all its downside, in a world full of investment opportunities that are not misaligned with technological, political, and cultural forces?

To be more concrete, why buy an oil stock that might declare bankruptcy in a year unless prices improve, when you could buy a regional bank with a single-digit PE, a 5% yield, and a decent chance of attracting a merger offer? Or profitable REITs yielding 4-8%? Or solar panels and insulation for your home, yielding a 6-7% ROI? Etc.

I think this is a great point. Remember that these investments are competing with every other type of investment out there. In my opinion at this point investing in Oil is kind of like "Cigar Butt" investing where you may get a few puffs out of that butt you picked up.

I'd much rather invest in something with a much clearer long term growth path in front of it.

MustacheAndaHalf

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Re: Oil Investing
« Reply #45 on: October 08, 2020, 09:43:51 AM »
From earlier in this thread:
Only a fraction of my portfolio is invested in individual stocks/options, and a smaller fraction of that is invested in oil & gas.  Vanguard Total Stock Market ETF (VTI) holds 2.4% oil & gas stocks.  Meanwhile my oil picks are 6% of my portfolio, or about 2.5 times the U.S. market weight.  So when I talk about oil investing, I'm talking about 6% of my portfolio.
waltworks - Index funds are a good investment, but they hold 2.4% oil & gas stocks.  Is 2.4% a sane holding but 6% is out of control?

ChpBstrd - Would a cigar butt industry have growing demand every year since the 2008 financial crisis?

Oil prices plummeted during lockdowns, showing the correlation between oil and Covid-19.  The pandemic is still keeping oil demand much lower than normal, which is reflected in oil prices.  Without predicting 5 years from now, what happens if oil demand recovers?

Vanguard Energy ETF is rather volatile.  Years like 2013 and 2016 have profits in the 26% to 29% range.  But there's years like 2015 or 2018 with 23% or 20% losses.  This year, Vanguard Energy ETF is down 48% year to date.

Covid dropped demand for oil, and oil companies took a hit to their stock price.  At some future point when Covid-19 ends, oil demand would rebound to previous levels.  Shouldn't the price of oil company stocks also rebound?

MustacheAndaHalf

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Re: Oil Investing
« Reply #46 on: October 08, 2020, 11:33:57 AM »
Just to make this concrete, I own call options on the following ETF:
SPDR S&P Oil & Gas Exploration & Production ETF (XOP)

During Covid-19, oil has been strongly impacted by Covid-19 and especially lockdowns.  Oil demand is lower than normal, and during a Covid recovery I would expect it to return to normal.  XOP has a 52 week range of $30 (March) to $98 (last year).  I believe that just as oil stocks dropped during Covid, they will partially recover alongside Covid.

Buying a "$45 call option" captures the all the profit above $45.  It has some time value, but if the stock never goes above $45 that option would expire worthless.  Buying an option like that which expires in Jan 20, 2023 costs 1/4th of the stock price right now.  If oil stocks go up +25% in 2.3 years, the option breaks even.

I view this as having two ways of making money:
* Recovery from Covid-19 occurs, and oil demand returns.  Oil companies make money selling oil, so low demand means lower profits and a lower stock price.  But when oil demand returns, their profits return, and so should their stock price.
* Oil company stocks might revert to the mean.  XOP's average price is closer to $150 over the past 14 years (Yahoo's maximum data), with a peak of $330.  If the oil industry randomly heads upwards, there's a lot of room.

To me, an oil stock ETF like XOP diversifies across dozens of oil companies, which spreads the bankruptcy risk.  There's upside with a Covid recovery, or from oil stocks reverting to the mean.

Jeferson

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Re: Oil Investing
« Reply #47 on: October 08, 2020, 02:32:02 PM »
I agree with you, investing in oil is very risky atm and it does not seem like this trend is going to change anytime soon (especially now, when everyone is staking at home). One could also day trade oil, but this is probably only for experienced traders. And from what I heard, most people actually lose money on day trading.

TomTX

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Re: Oil Investing
« Reply #48 on: October 09, 2020, 09:07:20 AM »
Whatíre thoughts on investing in an oil fields?

Great way to have your money looted by an experienced operator.

trollwithamustache

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Re: Oil Investing
« Reply #49 on: October 12, 2020, 12:05:30 PM »
Whatíre thoughts on investing in an oil fields?

Great way to have your money looted by an experienced operator.

certainly this is true for the publicly traded royalty trusts! Do you think that direct held mineral rights are also treated badly?  I only have very limited info from some guys who run a fund that owns mineral rights.